Securities Law "Roe v. Wade"

An interesting case is being heard tomorrow before the Supreme Court. The issue at hand is whether investor lawsuits can reach beyond the defendant company and target third party vendors. This is seen as a precursor to the lawsuits currently in motion with the whole Enron meltdown.

The specifics involves Charter Communication, a cable provider, that supposedly over paid Motorola and Scientific Atlanta for box sets and in return Motorola and S.A. bought advertising from Charter at inflated prices. Charter then added this inflated revenue to its books, inflating earnings and share price before the stock tanked.

Pro-business groups contend that even if these allegations prove true, Motorala and S.A. should be shielded because they did not inflate Charter's numbers. Charter itself is soley responsible for its deceptive accounting actions. Furthermore, these groups explain that an unfavorable ruling would dappen business, make the U.S. less competitive and hurt foreign investment into the U.S. with a wave of new lawsuits. In actuality, the companies are scared that they could be held liable for any business relationship they enter into even if they have no knowledge that their counterpart has some shady accounting practices.

While it makes sense to protect third parties in some respect, the memory of Enron still weighs heavily. Third party vendors including Merill Lynch appear to have deliberately aided in the inflation of numbers and should be held accountable. Its no suprise that investment banks are some of the biggest opponents of this lawsuit.

I'm not quite sure how I feel on this issue. On one hand, i agree that this could hurt business with blood-sucking lawyers filing lawsuits like its their job (actually it is there job..what am i thinking) against honest companies. On the other hand, if i was an investor and lost millions because an investment bank was aiding in downright fraud with the company i invested in, I'd want them held accountable.