Former SEC Officials Enter Securities Case
High Court to Consider Investors' Rights
By Carrie Johnson, Staff Writer
Tuesday, July 17, 2007
Three former Securities and Exchange Commission
officials yesterday asked for permission to intervene in a
Supreme Court dispute that could determine whether defrauded
investors can recover money from third parties.
The case has triggered national attention because it is likely
to have repercussions for employees and shareholders who lost
billions of dollars in the 2001 Enron collapse.
The five-member SEC voted earlier this year to
file court papers that support investors and their ability to
sue accountants, lawyers and other third parties who did not
make public statements about fraud but who nonetheless may have
helped their clients carry out the schemes. The SEC brief,
however, was never filed.
Last month the U.S. solicitor general, who speaks for the Bush
administration before the Supreme Court, did not accept the
SEC's position and let pass a deadline for filing legal briefs
on shareholders' behalf. The decision came after President Bush
and Treasury Secretary Henry M. Paulson Jr. said that position
could put U.S. companies at a disadvantage to foreign rivals and
expose businesses to substantial financial risks.
The case, in which Charter Communications investors want to sue
business partners Motorla and Scientific-Atlanta, is scheduled
to be heard by the Supreme Court in its coming term.
A bipartisan group of former SEC leaders, including former
chairmen William H. Donaldson (R) and Arthur Levitt (D), and
former commissioner Harvey J. Goldschmid (D), asked for
permission yesterday to file a post-deadline brief with the high
court in what they called a "critical" case.
"Holding liable wrongdoers who actively engage in fraudulent
contact that lacks a legitimate business purpose does not
hinder, but rather enhances, the integrity of our markets and
our economy," wrote their lawyers, New York University law
professor Arthur R. Miller and former SEC lawyer Meyer
Eisenberg. "We believe that the integrity of our markets is
The big-money issue has mobilized lawyers who bring class-action
lawsuits and the companies and executives they target in one of
the most important securities-law issues to reach the Supreme
Court in years.
In cases in which fraud-ridden corporations have filed for
Chapter 11 bankruptcy protection, investors may not be able to
wrest money from the company itself. Lawsuits against business
partners and advisers such as accountants and lawyers may
present the only rich and viable option for shareholders and
plaintiff lawyers, experts said.
Industry groups, including the U.S. Chamber of Commerce, have
already signaled their intent to file court papers with the high
court. Briefs supporting corporate defendants in the case are
due Aug. 15.