THE SUPREME COURT held last week that individuals can bring lawsuits against brokers and exchanges for violations of commodities laws and regulations. Previously the assumption had been that only the Commodity Futures Trading Commission, and the exchanges to which it delegates authority, could enforce the rules. Now the collective result of private lawsuits effectively will govern what brokers, traders and exchange officials can and cannot do.
At work is a tendency toward substituting private litigation for public regulation. Other examples spring to mind. Auto accident law and insurance rates have been affected for years as much by lawsuits seeking payment for injuries as by government regulation. And the antitrust laws against price fixing have been enforced far more vigorously and effectively by lawsuits brought--and organized--by profit-motivated private lawyers than by the actions of government enforcement agencies. The securities industry has long been governed in large part by case law. Now the commodities industry comes under the same rule.
It is probably all to the good. But the legal system and the profit motive, harnessed, can build a tremendous force. Many states have cut back on the right to sue for injuries in auto accidents, because they thought private litigation and the insurance system it produced were too expensive and unfair. In Congress now there is a consensus that some provisions of price-fixing law must be changed, because eager antitrust litigants have won verdicts from businesses that are far more than Congress wants even miscreants to pay. There are things that are too important--or too expensive--to leave to the invisible hand as it operates in the civil courts.
A House subcommittee has passed an amendment by Rep. Dan Glickman (D-Kan.) which would set limits on private commodities lawsuits.
The chairman of the CFTC opposes this amendment on the ground that "We might inadvertently become advocates of something more restrictive than what private claimants may already enjoy under existing case law," and Mr. Glickman now says he may withdraw his amendment. Both fear that a provision originally intended to authorize private lawsuits may, after the Supreme Court decision, turn out to operate as a limitation on them. Well and good--for the time being. Let us see how the case law develops. But no one should be under an illusion that going private will solve every problem here. Sooner or later Congress will have to act.