Op/Ed: A Return to Gordon Gekko Justice

California's The Recorder
Friday, March 21, 2008

Twenty years after Oliver Stone's "Wall Street" used the character of Gordon Gekko to show how that era's sleazy financial insiders manipulated the market and defrauded working people out of their retirements, among other crimes, the Supreme Court has given immunity to today's real-life Gordon Gekkos — the Enron investment bankers and other Wall Street fraudsters.
The court, perhaps in homage to the soon-to-be-released sequel to "Wall Street," ruled in January that the victims of securities fraud, such as public pension funds bilked of millions, cannot hold a "Master of the Universe" investment banker, white-shoe corporate lawyer or high-priced accountant responsible for knowingly helping a public company deceive investors. The court granted immunity to these Wall Street insiders even in cases when they are paid tens of millions of dollars for their complicity, even in cases where there are criminal prosecutions.
Specifically, in Stoneridge Investment Partners v. Scientific-Atlanta, 128 S.Ct. 761, the court ruled that shareholders could no longer hold these so-called secondary actors responsible when they participate in a scheme with a public company to inflate its stock price and, thereby, defraud shareholders.
In making this ruling, a majority of the court's justices acted as if they had never heard of Enron, WorldCom or the countless other cases of corporate fraud from the last several years — many of which were made possible by these very same secondary actors.
The Stoneridge ruling means that many victims of securities fraud can no longer recover even a fraction of the losses they suffer at the hands of deep-pocketed business interests who are directly involved in elaborate schemes to mislead the investing public.
Breaking with Securities and Exchange Commission precedent, the views of 33 state attorneys general and members of Congress from both parties — including ranking Senate Judiciary Committee Sen. Arlen Specter, R-Pa. — this ruling was one of the most activist Supreme Court decisions in recent years. It should come as no surprise that a representative of the national Chamber of Commerce giddily characterized the first year of Roberts' Supreme Court as, "our best Supreme Court term ever."
However, for those concerned about the integrity of our markets and the rights of investors, it may very well be the worst court ever.
Simply put, the Stoneridge decision — on top of eight years of the Bush administration pushing for less oversight of big business — has created an America where shareholders are more vulnerable and the integrity of our markets more exposed than they have been in decades.
The nation's economic climate is bleak: The subprime crisis is eroding confidence in the markets; the FBI has opened over a dozen criminal investigations of companies involved in the subprime mess; toys full of dangerous lead are being imported into the country from China. The last thing we ought to do is strip away protections that give the little guy a way to hold powerful financial institutions accountable for their misconduct.
The Stoneridge ruling makes it clear that the Supreme Court is far more interested in making sure Wall Street power brokers can keep greasing the wheels of commerce than in protecting the integrity of our markets and the rights of shareholders.
However, it is well established that public markets only work when investors have faith and confidence in them. Wall Street generates investment from Main Street only if Main Street believes it will not be swindled. People who have spent their whole lives working hard and hoping to retire with dignity only put their money into the stock market if they believe their money will be protected from fraud.
When it comes to protecting our financial markets from fraud, the court's decision represents the greatest rollback of protections in decades.
Wall Street has argued for the immunity of these secondary actors, claiming that determining their level of guilt would complicate and muddle the process of gauging the primary actors' guilt. However, the resulting decision by the court, conferring blanket immunity, would be akin to a big-city mayor deciding that the best way to address violent crime is to get rid of the violent crime laws altogether. Under such a scenario, the violent crimes reported on the city's streets would most certainly go down, but the real mayhem being committed would destroy the city.
Similarly, the Stoneridge decision could ultimately lead to mayhem on Wall Street and undermine public faith in our securities markets. Just imagine when the next Enron or WorldCom hits and the public discovers that the "secondary actors" behind the scheme — an investment bank that made tens of millions of dollars creating a transaction to generate artificial revenue, a law firm that papers the deal, and an accounting house that gave its imprimatur to the publicly reported earning — cannot be held accountable.
The court, in coming down on the side of these powerful Wall Street special interests seems to have taken Adam Smith's hidden hand that guides economic forces in a free-market system and extended it to the scales of justice. Even Adam Smith would agree that the hidden hands behind the economy are not allowed to pickpocket pension funds and other investors.
Wall Street's fictional Gordon Gekko excused his corporate malfeasance by claiming that "greed is good." Today's Supreme Court has now provided the real-life Gordon Gekkos a legal excuse. And for all the future Enron bankers, that translates into: "Crime does pay — a lot."
Joanne Doroshow is executive director of the New York City-based Center for Justice & Democracy.

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