Corporate Governance

The Supreme Court and the Mission to Restrict Investor Protection: Merck v. Reynolds (Part 8: The Importance of Justice Sotomayor)

By J. Robert Brown

The Supreme Court granted cert in Merck v. Reynolds to address the statute of limitations under Rule 10b-5.

We take a minute to observe the importance of the most recent nomination to the Supreme Court, Judge Sotomayor.  She will be replacing Justice Souter on the Court.  Most of the attention has focused on Judge Sotomayor's views on assorted social issues.  Another area of critical concern, however, will be her views on investor protection issues.  Few areas of law matter more than Rule 10b-5, the antifraud provision in the securities laws that is inevitably the basis for class action law suits against public companies for fraud.

Justice Souter is a strong supporter of investor rights.  He dissented in Stoneridge and Central Bank (the case eliminating aiding and abetting liability from 10b-5).  He joined in the pro-investor majority in Tellabs and dissented in Lampf, a case that effectively shortened the statute of limitations for securities fraud actions (until overturned by Congress in SOX).  Justice Souter wrote the majority opinion in Va. Bankshares, a case that reaffirmed the right to bring fraud actions for false opinions.  Critically, and largely overlooked today, Justice Souter was a critical vote in upholding the missapropriation theory of insider trading, a matter resolved in US v. O'Hagan, 521 U.S. 642 (1997).  Only a decade before, the theory had been to the Supreme Court and, in Carpenter v. United States, 484 U.S. 19 (1987), left unresolved by an equally divided Court.

Hopefully, investors will not lose any of their support when Judge Sotomayor replaces Justice Souter.  Merck v. Reynolds will be the first indication.

The cert petition and other primary materials can be found on the DU Corporate Governance web site.

Full post as published by The Race to the Bottom on June 24, 2009 (boomark / email).