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Court Declines Enron Investors' Appeal
The rulings were cheered by business leaders, including Robin Conrad, an executive at the U.S. Chamber of Commerce. "Our thinking was, if there was room for private actions, we'd be in a situation of a litigation free-for-all, that there'd really be no limiting principle here," she said.
The court decisions block plaintiffs from pursuing third-party cases but leave open an avenue for regulators at the SEC and prosecutors at the Justice Department. Current and former SEC officials, however, say they lack the resources to bring many of the complicated lawsuits, which can take years to investigate before reaching a courtroom.
In Enron, for instance, federal agencies collected $440 million for shareholders, far less than the amount that plaintiffs extracted in settlements with banks and accountants before the courts rejected their legal arguments, according to court documents.
"In effect, these financial institutions have one less thing to worry about," said Henry T.C. Hu, a securities law professor at the University of Texas.
That means Congress may be the last hope for plaintiffs seeking to expand their power to hold corporate miscreants accountable. House Financial Services Committee Chairman Barney Frank (D-Mass.) and Senate Banking Committee Chairman Christopher Dodd (D-Conn.) had urged the Supreme Court to rule on behalf of Enron shareholders. In an interview yesterday, Frank said he would hold hearings on the implications of both court rulings and on the workload of the SEC, which must shoulder the burden now that the Supreme Court has rejected plaintiffs' right to sue. The agency soon will be operating without any Democratic commissioners, who previously have backed third-party lawsuits.
"There's no point in legislation because you'd get a sure veto," Frank said. "There's zero chance" of passing such a far-reaching law in an election year, he said.
Also yesterday, the Supreme Court underscored its rulings by sending back another case ( Avis Budget Group Inc., et al. v. California State Teachers Retirement System) in which the U.S. Court of Appeals for the 9th Circuit agreed that an investor suit alleging "scheme liability'' could go forward. The justices told the lower court to reexamine the case in light of its StoneRidge decision.