From the NY Sun:
High Court Decision Could Protect Subprime Players
A decision by the U.S. Supreme Court could make it more difficult for investors to sue over the collapse of the subprime mortgage market.
Yesterday’s ruling puts strict limitations on when lawyers, accountants, and other professionals can be sued in securities fraud cases. The 5-3 decision in Stoneridge Investment Partners v. Scientific-Atlanta Inc. means that in many lawsuits over stock prices, only the “primary violators” of the alleged fraud can be sued. The court said private plaintiffs couldn’t bring such suits against defendants for “aiding and abetting” fraudulent bookkeeping.
While the decision’s most immediate effect is expected to be felt in lawsuits by Enron’s investors against investment banks, the decision could also put limits on suits by investors in mortgage-backed securities over the ongoing subprime mortgage crisis.
“There are a lot of people, credit rating agencies, mortgage consultants, and others who are immunized by this decision,” an expert on corporate governance at Columbia Law School, John Coffee, said.
“The importance of this decision to the subprime mortgage crisis is that professionals, whom we call ‘secondary actors,’ are less likely to be dragged into expensive litigation,” a co-chairwoman of the securities litigation practice at Foley Hoag LLP, Lisa Woods, said. Other legal experts questioned whether the decision would hinder investors holding mortgage-backed securities. Yesterday’s decision deals only with suits brought under federal securities laws.