If the Supreme Court is going to allow the business community to run virtually unchecked with these kinds of schemes, ...

Friend Of Defrauders Court | Submitted by Isaiah J. Poole on October 11, 2007 - 2:36pm.

If you are a Wall Street investment banker, there's new evidence that you've got the best Supreme Court money can buy.

Conservative Supreme Court justices did little to hide their disdain for the need to protect the interests of investors earlier this week as they heard the case of a group of stockholders seeking to recover damages from a corporation engaged in a fraud scheme designed to illicitly pump up their stock price.
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The case involves two cable box makers who entered into an agreement with Charter Communications, a cable company, in which Charter would pay a $17 million cost increase for boxes from the companies. The companies agreed to use the windfall to buy an equivalent amount of advertising. That enabled Charter to claim it had an addition $17 million in revenue as it treated the equivalent increased expense as capital spending. The effect was a balance sheet that looked better than it actually was, and hence a stock price that was artificially inflated, à la Enron.

This should be a no-brainer: If you cook up a fraud scheme that ends up inflating a company's stock price, you should be liable for the fraud. But, as we've noted before, the Bush administration is using the right-wing ideological playbook, not common sense law, to encourage the Supreme Court—as if recent Bush appointees John Roberts and Samual Alito needed persuading—to shield so-called secondary actors from liability in stock fraud cases.
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Roberts, the chief justice, made clear his stand when he said that Congress—that would be the Republican, Chamber-of-Congress-controlled Congress just reduced to minority status last year, to be precise—has already set the bounds for shareholder rights in these cases and, as he was quoted in The Washington Post, "my suggestion is that we should get out of the business of expanding it."

(The would be the same Justice Roberts who, along with Justiice Stephen Breyer, initially recused himself from hearing this case because both he and Breyer owned stock in Cisco Systems, the parent company of one of the cable box makers. But Roberts chose to sell the stock so he could weigh in. Breyer chose to continue refrain from participating.)

If the Supreme Court is going to allow the business community to run virtually unchecked with these kinds of schemes, with victims having no recourse, then Congress needs to step up now with a law that makes it clear that structuring Enron-style, cooking-the-books schemes is not merely sordid, but is the kind of criminal behavior that gets you sued.