The business-friendly U.S. Supreme Court will shortly decide two cases that could impact investors’ recovery rights for decades.
The key question is whether the Court will roll back existing law that currently protects investors. The stakes for Mom and Pop investors are huge; if the business lobby wins either of these cases, it would severely limit investors’ ability to have their grievances stemming from securities fraud and abuses heard as a class action.
First, on March 5, the Court will hear oral argument in “Halliburton.” This is the big enchilada because the Court will review the continuing validity of the “fraud-on-the-market” standard. Eliminating this standard “would mean the demise of private securities [class] actions and the deterrent and compensatory role they serve” according to the plaintiff’s lawyer in a report by Greg Stohr of Bloomberg.
Under that standard, the law presumes that false information (think phony quarterly financial results) issued by a public company influenced the price of the stock. That presumption is in danger of being extinguished for a group of investors suing in a class action.
The defendants argue in their court submission that plaintiffs should at least be required to prove that the alleged misrepresentations actually distorted the market price. That requirement in turn “would preclude class actions because it would require judges to conduct a case-by-case inquiry into the circumstances of each shareholder” according to Bloomberg’s Stohr.
That means no class actions and no company liability for massive frauds like Enron or WorldCom. The business lobby is licking its chops on this one.
The second case is “Fifth Third.” Here the Court will address a split in the circuit courts concerning the applicable pleading requirements for claims that ERISA fiduciaries imprudently invested the assets of employee stock ownership plans in employer-company stock.
Remember, ERISA is a federal law that sets minimum standards for pension plans in private industry. ERISA does not require any employer to establish a pension plan. It only requires that those who establish plans must meet certain minimum standards and requires accountability of plan fiduciaries.
In “Fifth Third,” the Court may decide to make it more difficult for company employees to recover under the ERISA law if employers commit stock fraud. In other words, the Court could gut ERISA, which is designed to protect millions of employees who own company stock in an employer stock plan.
Decisions favoring business in these cases could set investors rights back to the Stone Age. Brace yourselves, investors.
With a conservative 5-4 majority on the Court, Chief Justice Roberts will be the Kingmaker as he was in his surprise decision last year to vote to uphold the Obamacare law.
The question is, will Chief Justice Roberts decide for big business or for the investing public? Mom and Pop investors should be ready for a punch to the gut.
Zamansky LLC are investment and stock fraud attorneys representing investors in federal and state litigation and arbitration against financial institutions.