Interesting scenario with significant and practical implications. - Promoted by Specter

Today the Supreme Court will hear likely the most influential case in decades. The question being decided boils down to can banks, lawyers, accountants and suppliers be held liable for scheming with publicly held companies that deceive their stockholders?

The suit involves cable TV investors and cable TV providers who spent billions on upgrades for cable and internet serivce. Charter one of the parent companies, to offset the always needed revenue growth numbers to satisfy Wall Street falsely inflated its revenue statements, by 292 million for which four executives eventually pleaded guilty. Charter used revenue payments for advertising as revenue and this bundled sum cost was grouped in with the $17 million for a quarterly total.

Lawyers for Charters investors say the 'sham' deal and the lack of transparency caused their clients harm, and are asking for reparitions.

Short Overview

The case boils down to how much can corporations use third parties to hide costs, as profits, not dissimilar to the Enron case, and can investors seek reparitions due to lack of disclosure and fraudulent book keeping.

The Stoneridge case has actually caused a split in the Bush administration. The SEC originally sided with the plaintiffs. But in an unusual move, the White House publicly disagreed, and Solicitor General Paul Clement, in a brief, argued against third-party lawsuits. The Treasury Department and Federal Reserve have taken similar stands.

Securities Lawsuit

Justice Steven Breyer has recused himself from the case. Chief Justice Roberts originally recused himself but has divested his interests. The court would likely split 4-4 leaving the lower federal ruling standing that says the corporations are not liable.

This again highlights the need for transparency in transactions. How can investors make informed decisions when companies hide their costs, and then essentially outsource the loss to a third party.

This is likely the most high powered case the Supreme Court will see, and the ruling could be as significant as the Court ruling that defined corporations as a legal entity or Juristic Person, that declared corporations have the same rights as an individual.

It may be just a little bit of hyperbole to say this case is the Roe v Wade for Economics this century. But if you look at the line up heavy players that are taking sides, you may get more of a feel for how dramatic a ruling one way or another will affect the way corporations due business.

Noteworthy are corporate threats to take their toys and go elsewhere, if this case does not go in their favor.

More than 30 interested outside groups have submitted “friend-of-the-court” briefs. Briefs in support of the scheme liability concept have been submitted by several of the nation’s largest pension funds, attorneys general for more than 30 states, major labor unions, AARP, the Consumers Federation of America, and the trial lawyers trade group, now known as the American Association for Justice. Briefs opposing the concept have been filed by the U.S. Chamber of Commerce, the major securities exchanges, the securities industry, accounting industry, banking industry, insurance industry, law firms, and law firm insurers. The Solicitor General of the United States has weighed in on the side of the business community – i.e., opposing the scheme liability concept – though it did so over the objections of the Securities and Exchange Commission, which voted, 3-2, to support the concept.

What's at stake

I don't see the Courts ruling against the corporations here, especially a Roberts court. CSpan had asked to air an audio of the case later today but was denied. This case also has implications for those seeking reparitions of harm from the collapse of Enron.

Along the same lines the NYSE has censured 15 brokerage firms for failure to disclose essential data.

The industrywide investigation by the New York Stock Exchange's regulatory arm began in 2004, when it found that Morgan Stanley had failed to send prospectuses to a large number of customers, among other problems. NYSE Regulation hit Morgan Stanley with a $13 million fine and told other Wall Street firms to admit to any similar violations.

Cliets Didn't Get Investment Data

Since some equate the stock market with gambling, anyone want to take bets on how the Court will rule in this case? I am putting my monopoly money that the investors will not be allowed to seek damages for harm.