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Attorneys Press High Court To Hear Enron Investor Suit
Lawyer Blog News | 2008/01/18 14:47
A $40 billion lawsuit by Enron investors against several banks for orchestrating financing deals for the now-defunct energy trader is not dead, despite a recent Supreme Court decision that helps protect such third parties.

In fact, some lawyers who represent investors argue the high court decision involving cable company Charter Communications and two of its suppliers, made a clear distinction that justifies hearing the Enron case.

The Supreme Court ruled 5-3 that shareholders cannot sue third parties in securities fraud cases, unless investors relied on their statements or representations when making investment decisions.

Stoneridge Investment Partners, on behalf of Charter shareholders, had accused the two suppliers of scheming to inflate company revenues in 2000.

Lawyers for investors point to sections of Justice Anthony Kennedy's majority opinion, which they say makes a distinction between third parties involved in the goods and services arena and those involved in the investment sector.

"He repeatedly made that distinction. That distinction distinguishes Enron from Stoneridge," said Pamela Gilbert, a consultant for the American Association for Justice, the world's largest trial bar association.

"Stoneridge involves a customer relationship. In Enron, the major wrongdoers are the investment banks involved in the financial transactions," Gilbert said.



Court Upholds NY Judicial Nominee System
Lawyer Blog News | 2008/01/17 18:06
A U.S. Supreme Court ruling that upholds New York's system of choosing trial judges is likely to renew calls for legislative reform, but even some proponents of change say their chances of success are slim. That's because the current system gives tremendous power to local party leaders, who select judicial candidates and often hold sway over state lawmakers.

"Party chairmen like the system, for obvious reasons, and people who run for the legislature are usually in a position where it's difficult to vote for something like this because their party leaders are opposed to it," state Sen. John DeFrancisco said after Wednesday's ruling. DeFrancisco, a Republican, chairs the Senate Judiciary Committee.

In New York, primary voters elect convention delegates who choose candidates for the judgeships. Once nominated, the candidates run on the general election ballot, frequently without opposition.

Unsuccessful candidates for judgeships and a watchdog group won a lawsuit challenging the system, and the 2nd U.S. Circuit Court of Appeals agreed that it is very difficult for candidates to get on the ballot if they don't have the support of party leaders.

The rulings said candidates who are not the choice of party leaders are excluded from elections by an onerous process that violates their First Amendment rights.

The Supreme Court unanimously reversed the lower courts, saying there is nothing unconstitutional about the process. The high court said the state legislature is free to change the system if it wishes.

Former New York Mayor Ed Koch — who was among a diverse group of politicians and legal groups asking the court to uphold the lower court rulings — called the decision a "dreadful mistake."

"The county leaders will now continue to basically assure the appointment to the (state) Supreme Court of their candidates," Koch said.

The state legislature adopted the current system 86 years ago. Lawmakers scrapped direct primaries for New York's Supreme Court justices because they didn't want them to be corrupted by raising campaign money. Other judges in New York are elected through primaries.



Court limits investor suits against 3rd parties
Lawyer Blog News | 2008/01/16 15:02
In a case born of the accounting scandals that rocked the nation in the first half of the decade the Supreme Court Tuesday limited the ability of defrauded investors to sue accountants, bankers and lawyers who may have helped a company commit the fraud.

The 5-3 decision represents a victory for corporate America, the business lobby and the Bush administration, all of which urged the court to insulate those third parties from so-called "scheme liability," which attempts to reach outside companies who may have contributed to the stock fraud.

"The Supreme Court today handed down a major victory for the U.S. economy and investor welfare," said Stephen Shapiro, the Chicago lawyer who argued the defendants.

The ruling is likely to have a major impact on class-action lawsuits arising from the implosions of Enron Corp. and HealthSouth Corp., among others, making it less likely that those suits will survive. It brought a torrent of criticism from investor advocates and some on Capitol Hill, including Sen. Christopher Dodd (D-Conn.), chairman of the Senate Banking Committee.

The decision, Dodd said, will "protect wrongdoers from the consequences of their actions."

The case involved investors who sued Scientific-Atlanta Inc. and Motorola Inc., vendors for cable company Charter Communications Inc., alleging that the vendors were part of a scheme to misrepresent Charter's revenue and pump up its stock price. When the accounting errors were revealed the stock price plummeted.

The dispute was one some observers labeled the "Roe vs. Wade" of securities law, with more than 30 friend-of-the-court briefs filed. When the case was accepted by the court, speculation mounted on the Bush administration's position. In an unusual move, the White House ignored the advice of the Securities and Exchange Commission, accepting instead the Justice Department's recommendation to side with such groups as the U.S Chamber of Commerce and the National Association of Manufacturers.

Justice Anthony Kennedy, writing for the five-justice majority, said that because the vendors made no specific representations about the health of Charter's finances to Charter's investors the vendors weren't liable under federal securities laws. Only the SEC has the authority to bring such "aid-and-abetter" actions against third parties, the court held.

Jeffrey McFadden, a Washington securities litigator, said, "The court looked at the case in very practical terms: Who were the parties that actually made the statements that deceived someone?"

In October Kennedy voiced concern that siding with the investors would result in an explosion of securities litigation. And on Tuesday he seemed to echo that concern in writing, "Were the implied cause of action to be extended to the practices described here, there would be a risk that federal power would be used to invite litigation beyond the immediate sphere of securities litigation."

Kennedy noted the potential impact on the U.S.economy, saying that "contracting parties might find it necessary to protect against these threats. Overseas firms with no other exposure to our securities laws could be deterred from doing business here."

Shapiro, with Chicago firm Mayer Brown, said the outcome actually benefits most investors because a decision the other way would have driven up the costs of outside legal and financial services.

Along with Kennedy, Justices Antonin Scalia, Clarence Thomas, John Roberts and Samuel Alito formed the majority. Justice Stephen Breyer recused himself from consideration of the case because he owns stock in one of the parties.

Justice John Paul Stevens, with Justices David Souter and Ruth Bader Ginsberg, dissented. Stevens wrote that Charter could not have pulled off the accounting fraud without the vendors' help and that the vendors knew that investors would rely on Charter's inflated stock price as a measure of the company's worth.


MySpace agrees to social-networking safety plan
Lawyer Blog News | 2008/01/15 13:58

MySpace, the country’s largest social-networking Web site, has agreed with attorneys general of 49 states to take new steps to protect children from sexual predators on its site. It also agreed to lead a nationwide effort to develop technology to verify the ages and identities of Internet users, officials announced Monday.

The agreement is the latest attempt by law enforcement officials nationwide to shield children from online dangers, including the risk of encountering inappropriate sexual content or receiving sexual advances through sites like MySpace and Facebook. The sites, increasingly popular among college, high school and even younger students, allow any Internet user to create a profile to display personal information and build networks of friends online.

Richard Blumenthal, the Connecticut attorney general, announced the deal at a news conference in Midtown Manhattan, along with a MySpace executive and Roy Cooper, the attorney general of North Carolina. Also present were Attorney General Anne Milgram of New Jersey and the attorneys general of Pennsylvania and Ohio.

Mr. Blumenthal said the voluntary agreement went further than the one struck in October between New York’s attorney general, Andrew M. Cuomo, and the Facebook Web site.

“It’s stronger, broader, a very significant step or even a milestone in making the industry aim higher to keep kids safer,” Mr. Blumenthal said in an interview.

He cited steps in the new agreement to separate children’s profiles from those of adults and to seek ways to verify users’ ages — steps that he called for after the Facebook agreement, when he and Mr. Cooper had said that stronger measures were needed.

Mr. Cuomo said the MySpace agreement built on Facebook’s acknowledgment that it bore responsibility for protecting users.

“The Facebook agreement broke the ice,” he said.

The most important new measure, Mr. Blumenthal said, is that MySpace will create and lead a task force to find ways to verify ages and identities online. The task force, which will receive input from competing sites, child protection groups and technology companies, will report back to the attorneys general quarterly and issue recommendations at the end of this year.

Facebook, in its agreement with New York prosecutors, promised to respond more speedily to complaints about sexual messages and to warn users in stronger language that the site could not guarantee children’s safety.

The new agreement with MySpace, signed by 50 attorneys general — the top prosecutors of the District of Columbia and every state except Texas, includes similar provisions, and more.

“This is an industrywide challenge, and we must all work together to create a safer Internet,” Hemanshu Nigam, the chief security officer of MySpace, said in a statement.

MySpace, which says it has about 70 million users, agreed to install safeguards that require an adult user to prove that he or she knows a child user in order to contact that child, for instance by typing in an address or phone number.

Profiles of users under 18 will automatically be set to “private,” preventing casual browsers from seeing them.



High Court Declines Experimental Drugs Case
Lawyer Blog News | 2008/01/14 16:48
The Supreme Court refused Monday to review a ruling that terminally ill patients have no constitutional right to be treated with experimental drugs — even if that means the patient will likely die before the medicine is approved. A federal appeals court, siding with the Food and Drug Administration, last year said the government may deny access to drugs that have not gone through extensive testing and received FDA approval. The process can take years.

The Supreme Court did not explain its decision to leave the appeals court ruling undisturbed. Chief Justice John Roberts did not take part in the action.

The Abigail Alliance for Better Access to Developmental Drugs and the Washington Legal Foundation sued the FDA in 2003, seeking access for terminally ill patients to drugs that have undergone preliminary safety testing in as few as 20 people but have yet to be approved.

Abigail Alliance was created by Frank Burroughs, whose daughter, Abigail, was denied access to experimental cancer drugs and died in 2001. The drug she was seeking was approved years later.

The alliance said all it was asking for "is a right for terminally ill patients with no remaining treatment options to fight for their own lives."

The FDA said the appeals court was correct and in line with other rulings "that have rejected constitutionally based demands for access to unapproved investigational drugs."

The full U.S. Court of Appeals for the District of Columbia Circuit ruled against the alliance after a smaller panel of the same court held that terminally ill patients may not be denied access to potentially lifesaving drugs.

The court said patients can access experimental drugs in certain situations and suggested Congress could change the law to broaden such access.



US Lawmakers Request Probe into Wealth Funds
Lawyer Blog News | 2008/01/11 17:23
U.S. Senate lawmakers have ordered federal investigators to examine foreign state-run investment funds and whether the much-needed capital infusions being provided to major U.S. banks raises any economic or security concerns.

The Government Accountability Office this week began an investigation into sovereign wealth funds, including the size and types of investments funds are making in U.S. markets, a spokeswoman said.

The probe, which was requested by the Senate Banking, Housing and Urban Affairs Committee, will also examine what oversight - both international and in the U.S. - is conducted on the funds and whether the funds pose a risk to U.S. economic stability.

The state-run funds, primarily those located in Asia and Middle East, have made headlines in recent months by acquiring stakes in major banks such as Merrill Lynch & Co. (MER), Citigroup Inc. (C), and UBS AG (UBS), a major Swiss bank with extensive U.S. operations.

Both Merrill and Citi, which have already received billions in cash infusions from the funds, are currently in talks to receive even more capital from outside investors.

That has raised eyebrows on Capitol Hill, where lawmakers have aggressively scrutinized foreign investments in U.S. companies in recent years. The most notable case involved Dubai-controlled DP World. In 2006, federal approval for the firm to manage six U.S. ports sparked a firestorm of controversy and led lawmakers to pass a law overhauling the review process for foreign investments in the U.S.

The role of sovereign wealth funds has yet to reach the same level of scrutiny as the ports deal, but the GAO investigation could signal lawmakers will focus more attention on the issue when they return to Washington this month.

In addition to the Senate Banking panel, House Financial Services Chairman Barney Frank, D-Mass., is also expected to have his committee conduct oversight hearings on the funds this year.

U.S. lawmakers are not alone. A number of European governments have said they are drafting proposals limiting or blocking foreign state-run investments.


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