Bush Weighs In Against Investors In Fraud Case

President Bush expressed displeasure with a government strategy that would have given plaintiffs' lawyers more leeway to sue over corporate fraud, administration officials said yesterday.

The president's unusual feedback came in the context of an upcoming Supreme Court case that will determine when third-party bankers, accountants and law firms are financially liable to investors.

The dispute will affect a number of other cases, most significantly the long-running efforts by Enron shareholders to recoup their losses. On Monday, the same day Bush shared his views within the administration, the U.S. solicitor general declined to file court papers on behalf of shareholders in the Supreme Court case.

"The president's views are based on a policy of not expanding the scope of private shareholder litigation against third parties, not on any of the corporations involved in this case or related cases," Tony Fratto, a White House spokesman, said in a statement.

Experts say the dispute carries major ramifications, potentially resolving whether shareholders are entitled to money from third parties who helped corporate clients commit fraud but who did not themselves make misleading public statements in the process.

The case, which the Supreme Court has agreed to hear in its next term, was filed by investors in Charter Communications, who want to move ahead with a lawsuit against two business partners that allegedly helped Charter disguise its financial problems.

How the court handles the Charter case will have bearing on a stalled lawsuit filed by Enron investors who allege that Merrill Lynch and Barclays helped Enron generate phony revenue.

A fierce lobbying campaign pitting the U.S. Chamber of Commerce against labor groups and California plaintiffs' lawyer William S. Lerach has been underway for weeks. The issue opened a split between the Securities and Exchange Commission, which advocated filing a friend-of-the-court brief for the plaintiffs, and the Treasury Department, Federal Reserve Board and Office of the Comptroller of the Currency, which opposed the move.

Solicitor General Paul D. Clement reached out to the White House for its view, and a lawyer there shared Bush's reservations Monday without directing Clement to adopt a particular position, the White House said. Bush reasoned that securities regulators and prosecutors still have the ability to pursue cases against wrongdoers.

But legal experts and former SEC officials have said that the government lacks sufficient resources and that investors need the power to file lawsuits on their own behalf to pick up the slack.

"President Bush thinks that enough people have forgotten what his friends at Enron and on Wall Street did to working people," said Damon A. Silvers, associate general counsel at the AFL-CIO. "I suspect he's mistaken."