Expect Stonewalling of ‘Stoneridge’
In one quick stroke of the pen, Congress could put an end to one of the most dangerous outcrops of the past decade’s laissez faire financial regulation: Ponzi Schemes.
The pen stroke I’m referring to is the recent development that Barney Frank (D-MA) is considering including a provision in the regulatory reform bill that will combat the devastating effect of the 2007 Supreme Court decision known as “Stoneridge.”
The Stoneridge decision made it extremely difficult for an investor to sue a firm that may have aided or abetted fraud. Amazingly, corporate America can earn fees by helping fraudsters with relative impunity because of the Supreme Court’s ill-advised decision.
The Stoneridge decision was a special gift to the so-called “gatekeepers” of financial fraud. Accounting firms, law firms, investment banks, ratings agencies and others are relied upon by the public to report and internally police fraud when it rears its ugly head.
Yet our gatekeepers have chosen to stick their heads in the sand and sometimes even help fraudsters ply their trade knowing they probably won’t be held accountable.
Indeed, gatekeepers have no incentive to take their responsibilities seriously. I’ve written about numerous Ponzi Schemes, including Bernie Maddoff’s, that could never have been pulled off were it not for the involvement of household name financial services firms.
Congressman Frank’s adoption of this issue follows an earlier effort from Senator Arlen Specter (D-PA). Senator Specter, who lost his primary election this year, should consider this provision his legacy and urge his colleagues to stand strong against what will be an onslaught of lobbying.
Not to sound flippant, but expect a lot of stonewalling of Stoneridge. Senator Chris Dodd (D-MA), has already said that he’d prefer yet another “study” into the provision’s effect, adding to the over 28 studies the bill already calls for.
There is nothing to study: if third parties are held legally responsible for their actions, you can rest assured they will be more careful about who they do business with.
Jacob ("Jake") H. Zamansky is one of the country’s foremost authorities on securities arbitration law, the legal recourse for investors claiming broker wrongdoing, or for brokers claiming wrongful termination or other misconduct by their employer. Zamansky & Associates, the New York-based law firm he founded, represents both individuals and institutions in complex securities, hedge fund, and employment arbitrations.
COMMENT ON THIS BLOG POST
Or contact Jake Zamansky privately