Late last Friday, in an intervention before the United States Supreme Court, steps were taken to make it more difficult for investors to sue companies in fraud cases. You might expect that such a move would come from a business lobby group, the U.S. Chamber of Commerce or the Business Roundtable, for instance. Wrong. It came from the Securities and Exchange Commission, which filed an amicus brief with the court urging the creation of an even higher threshold for shareholder litigation. Many observers, including this one, fear this is the beginning of a calculated shift to roll back Enron-era investor protections. It is said by those who have read the filing that it looks more like a litigant’s advocacy than a regulator’s brief. Readers will recall our views here on the proposal by a group known as the Committee on Capital Markets Regulation, which included corporate directors and senior executives in the accounting industry, to make it more difficult for investors to sue.
Now, if their motto were, say, the corporation’s advocate or the hedge fund’s advocate, this would still be hard to take. But their motto is “the investor’s advocate,” which by the way, was the creation of William O. Douglas who served as the SEC’s second chairman under FDR. Many of its chairmen have taken that motto seriously. This stunt turns it into a parody. Which makes the move by the SEC to limit shareholder recourse –oh, and also they want to make it harder to sue accounting firms, just to add insult to injury– the Outrage of the Week.