Legal News

Berkshire?s Munger: Subprime Makes ?Enron Look Like a Tea Party?

By Dan Slater

Most of the time, Warren Buffet’s activities, when unrelated to Gen Re, fall outside the Law Blog’s long-arm jurisdiction. But then there’s Charlie Munger, Berkshire Hathaway’s vice chairman who, after founding law firm Munger, Tolles & Olson, left law to join Buffet in a, well, slightly more profitable line of work. And at Berkshire Hathaway’s annual shareholder meeting in Omaha on Saturday, Munger, according to this WSJ report, made some LB-worthy comments.

Munger, 84, told shareholders that the current credit crisis is worse than the market disruptions triggered by Enron’s bankruptcy earlier this decade. After Enron collapsed, U.S. legislators passed the Sarbanes-Oxley Act to try to prevent such massive frauds rocking markets in the future, Munger said. “We now know they were shooting at an elephant with a pea shooter. We have convulsions now that make Enron look like a tea party.” What does that mean for potential regulatory overhaul? According to Munger, the credit crunch will produce more changes in regulations that “won’t work for everybody.”

Still, in the absence of any Sarb-Ox-like regulatory reform to address the mortgage crisis, investors may well be turning to their old friend, the lawsuit. Back in July, the Law Blog posted on a study released by Cornerstone Research and Stanford Law’s Securities Class Action Clearinghouse indicating that, by mid-2007, securities class actions were down from 2006 numbers. According to Joseph Grundfest, the director of the Clearinghouse, increased enforcement activity by the SEC and DOJ, and a strong stock market accounted for the drop. But then, five months later, the Law Blog came across studies (here and here) indicating that, due to the subprime crisis, securities-fraud class actions were up. Lawyers filed 166 securities-fraud wannabe class actions in 2007, a 43% increase over last year’s filings.

Full post as published by Law Blog - WSJ.com on May 05, 2008 (boomark / email).