U.S. vs. Investors

From Washington Post:

The Bush administration yesterday sided with accountants, bankers and lawyers seeking to avoid liability in corporate fraud cases, arguing that investors must show they lost money after relying on deceptions by third parties in order to proceed with private lawsuits.

Ending weeks of speculation and intense lobbying, U.S. Solicitor General Paul D. Clement backed business interests in a multibillion-dollar dispute the Supreme Court will hear this fall. Allowing investors to move forward with their case, Clement wrote in a filing to the court, flies in the face of congressional intent and would amount to "a sweeping expansion" of the law.

In the filing, Clement mostly adopted concerns expressed by President Bush, Treasury Secretary Henry M. Paulson Jr. and major trade groups including the U.S. Chamber of Commerce and the National Association of Manufacturers.

Weighing in for plaintiffs, Clement argued, would expose third parties in the United States and overseas to billions of dollars in legal claims and "considerably widen the pool of deep-pocketed defendants that could be sued" for misrepresentations by their business partners.

At issue in the case is whether shareholders can sue banks, law firms, accounting firms and suppliers who engaged in fraud but did not make public statements about the scheme on which investors relied. Clement said that third parties who do not speak to the market still can trigger prohibitions on manipulative or deceptive conduct. But to prevail, he said, private plaintiffs must prove they relied on the third parties to make investment decisions and that they suffered losses as a result.

In recent weeks, Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.), House Financial Services Committee Chairman Barney Frank (D-Mass.) and House Judiciary Committee Chairman John Conyers Jr. (D-Mich.) made court filings on behalf of investors in the case. Attorneys general from nearly three dozen states filed similar papers. And former Enron employees and investors held news conferences in Texas and Washington, among other cities, to press their case with lawmakers.