Searching through the files on the Stoneridge case, I came across Robert Borosage’s item at Huffington Post. Published just before the Supreme Court decided the case, Borosage reports that, at the urging of Treasury Secretary Hank Paulson (former Goldman Sachs CEO), Bush intervened to insist that the Solicitor General side with the defendants. The SEC had urged that the government side with the plaintiffs, which would have meant the administration was backing third party liability. It is a bit surprising that a Chris Cox-led SEC would take this position, but perhaps that indicates just how damaging to honest dealing the Supreme Court decision actually was.
“Wall Street’s investment banks,” Borosage presciently wrote, “just got another step closer to making defrauding investors an accepted line of business… If the Wall Street banks have no liability for fraudulent schemes they concoct, the scandals of the last decade will look like chior boy pranks compared to what is to come.” (Huffington Post, June 13, 2007)
It was evident at the time that the stakes of the Stoneridge decision included the Enron cases. As noted, Stoneridge was a major reason plaintiffs dropped $40 billion of suits against Enron’s third party helpers. Of course, Enron was bankrupt and could not provide any relief.
Now, not long ago, the report on the Lehman Brothers collapse came out, indicating that plenty of financial manipulation was underway well before bankruptcy. The report suggests that the company’s accounting firm, Ernst and Young, assisted Lehman in its 105 schemes to boost the balance sheet. Once again, the main culprit is broke and can provide no relief. It would seem to me that accountants, lawyers, brokers, and the like could once again be on the hook for their part in helping Lehman deceive investors. Does Stoneridge, along with related decisions, bar private suits against Lehman’s aiders and abettors? Are there other avenues to recover some of the losses?