Legal News

Stoneridge & Enron: More Post-Game Analysis

By Peter Lattman

This morning’s papers highlight the Supremes decision yesterday to turn away an appeal from Enron shareholders seeking to recover losses from Wall Street banks. The WSJ says the decision, which effectively ends the class-action securities-fraud lawsuit, underscores “the sweep of last week’s [Stoneridge] decision limiting the liability of companies that help other corporations commit fraud.” The WaPo called the ruling “a staggering setback to the movement to expand investor rights.”

The court held in Stoneridge that the SEC has exclusive authority to go after third parties such as bankers, lawyers and accountants, unless those parties issued public statements on which investors relied.

As loyal Law Blog readers know from the comments on this blog, Stoneridge has become a rallying cry for shareholder-rights activists. “From a public policy standpoint, it’s an outrageous result,” Former SEC Commish Harvey Goldschmid told the WaPo yesterday. “You can’t turn down Enron without understanding the signal you’re sending.”

Now let’s not shed too many tears for the Enron plaintiffs. They and their lawyers, led by Bill Lerach, collected $7.3 billion in settlements from Wall Street banks before the case was scuttled by the Fifth Circuit last year. Tort-reform advocate Ted Frank, in a NY Sun op-ed today, says this amounted to extortion. Yesterday’s ruling, he wrote, “closes an underreported chapter in American litigation history: how trial lawyers used the Enron scandal to successfully and legally extort billions of dollars from investment banks with a legally meritless lawsuit.”

But don’t count the plaintiffs bar out so fast. Last year in previewing Stoneridge and other important securities-fraud suits before the Supremes, we quoted corporate defense lawyer Boris Feldman at Wilson Sonsini. “The smart money isn’t counting them out because when the plaintiffs’ bar runs into new roadblocks they’re very creative at finding a path around them.”

Exactly. Yesterday, a spokesman for the lead plaintiff at the University of California, said the school will present its alternative approach soon to a federal district court. And Dan Newman, the spokesman for Coughlin Stoia whose role in Stoneridge was highlighted by this WSJ story: “We’re used to surmounting big obstacles in this case.”

Full post as published by Law Blog - WSJ.com on January 23, 2008 (boomark / email).