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Question of the Day – Lawsuits and Corporate Fraud
By JLP | October 9, 2007
From the cover of today’s Wall Street Journal comes this story Big-Money Battle Pits Business vs. Trial Bar ($). An excerpt from the article:
The Supreme Court is wading into one of the most intense battles ever waged between two deep-pocketed enemies: the trial bar and big business.
Today, the justices will hear arguments in a case that hinges on whether defrauded shareholders should be allowed to sue not just the company that committed the crime, but also its advisers, lawyers, accountants and vendors.
A ruling for the plaintiffs could significantly expand the power of defrauded shareholders to sue — and could dramatically increase monetary paybacks. It could spark a host of new shareholder suits and expand the multibillion-dollar field of securities class-action lawsuits.
Did you catch the second paragraph? Trial lawyers want to be able to sue not only the company but also its advisors, lawyers, accountants and vendors! WOW!
This is not the answer! Trust me. This will do NOTHING to help shareholders! This will ONLY HELP trial lawyers make more money!
Of course I’m against corporate fraud. The executives who commit corporate fraud should be fried. The guilty parties should have everything taken away from them and they should go to prison for a very long time. However, I’m not so sure everybody and their brother should be able to be sued.
Why? Because the shareholders who the lawyers claim they are trying to protect, should have a diversified portfolio to begin with. Then, should fraud happen, it is a small portion of their portfolio. If a shareholder loses half their net worth due to fraud, SHAME ON THEM for having too many eggs in one basket!
Now it is your turn to weigh in.
I’d like to know what you think.
Topics: Weekly Roundup | 7 Comments »
October 9th, 2007 at 12:34 pm
That is crazy. Unless the vendors/advisors/lawyers/etc. of that company knowingly participated in or facilitated in the actual fraud, they should not be held accountable. In most cases, an accountant or lawyer working with the firm would have no clue that this was going on. The company provides them with information, and they process and handle it. It isn’t their job to try and detect fraud from the company they are servicing.
Sure, if you have an accountant that is helping fudge the numbers with executives to commit such fraud, then by all means, they are a guilty party as well. But unless there is hard evidence showing that these third parties were actively involved with the fraudulent practices, there is no recourse.
October 9th, 2007 at 2:55 pm
I think they should be able to hold every single entity accountable if they can demonstrate that the particular entity’s actions or omission amounted to fraud and helped to cause the company’s eventual losses.
Company’s are often not able to commit fraud without the aid of advisers and third parties. Large corporations require accounting firms to overlook or rubber stamp certain practices to be able to commit certain actions. Everyone and every entity who had a hand needs to be held responsible.
Of course I’m probably biased on this matter
October 9th, 2007 at 3:18 pm
I believe this is fine on two conditions. The first condition is that there are strict guidelines set about who can be charged (involvement causing more than $x in damages) and limiting lawsuit payouts to the extent of the estimated value of their contribution (or takeaway). There must be clear evidence that those parties are definitely involved in illegal practices. The second condition is that secondary parties must be sued AFTER the company has been deemed guilty. This is to prevent lengthy proceedings that basically go on forever and pad lawyer pockets.
Shareholders will benefit, and so will trial lawyers. The secondary lawsuits of involved parties should be limited so that lawyers do not collect until shareholders collect.
The fact that people should be diversified and thus not severely affected by a company’s fradulent actions is not grounds for dismissing such a matter; this issue is trying to fully address all guilty parties and deliver more compensation to shareholders. Even if shareholders do not benefit in any way from these extra lawsuits, ALL of the guilty parties (not only the company) are weeded out, and they will be less likely or unable to commit the same illegal actions.
October 9th, 2007 at 5:14 pm
I think anybody should be vulnerable to investigation and, if appropriate, having a grand jury figure out whether the case has merit. But I think it should be very specific, based on probably cause and the like.
For example, Anderson Accounting who helped Enron are either contractors, vendors, or accountants of Enron (depending on how you look at it). Direct participation in the fraud, there. But the vendors who, say, furnished Enron’s lighting might be investigated (as anybody might) but shouldn’t be vulnerable to being tried, since they didn’t collaborate in the fraud.
Basically, I agree with you.
October 9th, 2007 at 8:06 pm
You should check your facts: the question is whether the advisors can be liable when they *knowingly* participate in sham transactions. Even the Solicitor General, which sides with Wall Street, admits that such conduct is “deceptive” within the meaning of securities law, and admits the plaintiffs alleged it correctly.
The question here isn’t whether the banks knowingly participated in a fraud on the public. The question is if you can sue them under securities law given technical requirements such as proving you “relied” on the fraud when investing.
See this post, with link to the government’s brief, for more:
http://blawgletter.typepad.com/bbarnett/2007/08/solicitor-gener.html
October 10th, 2007 at 10:36 am
Try to get yourself removed from a lawsuit. When a plaintif lawyer files a suit, it if filed on anyone even remotely connected to the company at all. Proving you were not involved and getting removed from the suit is very costly. The plaintif lawyer has nothing to lose so they file against anyone they can. Let the plaintif lawyer have some shin in the game, if an intity is able to be removed from the suit the plaintif lawyer should be responsible for costs incurred to be removed. That is the only way you will ever see sensible and RESPONSIBLE actions by a plaintif attorney.
October 15th, 2007 at 10:23 pm
Well, as everyone said – only those that are directly a part of the fraud and scheming should be able to be sued. Most lower level workers wouldn’t know about the higher corporate dealings, and most certainly not about any scams going on.