More on the Stoneridge case. In 2009, Senator Arlen Specter introduced a bill to restore third-party liability in securities fraud cases (S.1551). Specter held hearings September 2009 in the subcommittee he chairs, the Judiciary Committee's Subcommittee on Crime and Drugs. One of the five witnesses was labor lawyer Patrick J. Szymanski. Szymanski reviewed several prominent cases Stoneridge had affected, including the Enron litigation. In addition, he noted the Refco case, in which Refco's law firm had fully participated in producing and delivering documents that misled investors and shareholders as to the company's condition. Refco was able to sell $600 million in bonds and issue $670 million of stock while insiders sold their stock in the company. The case resulted in criminal indictments for a number of people, but the court ruled that, following Stoneridge, the law firm could not be held liable for civil damages. Likewise, third parties, including Time Warner AOL, escaped civil litigation in the Homestore.com case. Using triangular deals, Homestore.com created a false illusion of high revenues. Third parties, well aware of the deception and willingly participating, were protected from civil liability. In another case, the Tribune Company used false circulation numbers for its publications Newsday and Hoy to defraud advertisers. Again, no right to sue those abetting fraud existed. 

To be sure, investment banks and advisers could be held in violation of securties rules by the SEC and fined. Stoneridge did not remove the SEC’s enforcement powers, only the right of duped investors to go after firms assisting a fraud for civil damages. Yet, the SEC fines levied on offending firms are trivial compared to the vast sums they reap from shady deals. As Matt Taibbi notes in Rolling Stone, for instance, Goldman Sachs paid a $110 million fine for manipulations during the dot.com bubble, while distributing $7 billion in employee compensation: “For a bank that paid out $7 billion a year in salaries, $110 million fines issued half a decade late were something far less than a deterrent — they were a joke.”

In light of what we know about the degree of fraud and misrepresentation in subprime mortgages and the derivatives based on them, it would appear that numerous third parties could be involved in defrauding investors, including employee pension funds. Ratings agencies reportedly deliberately chose not to look at the important information needed to assess the quality of mortgage-backed securities. Investment banks and brokers almost surely knew how shaky the toxic assets were before they helped sell them into the global market. William K. Black asserted that all parties to the deception had adopted a 'don't ask, don't tell' policy, turning a blind eye to the weakness of the underlying loans. 

As for S.1551, there is no sign that the bill has gone anywhere after the September hearings.