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Wednesday, June 20, 2007

Supreme Investor Injustice?

The full scale assault on investors’ rights continues with the Supreme Court ruling that the antitrust rules, which govern U.S. corporations, don’t apply to securities industry firms. Specifically, they are referring to tie-in requirements that forced investors to agree to pay excessive commissions and expenses in order to have access to hot IPO stocks. As a former Federal Trade Commission (FTC) lawyer, I know this area well. Under antitrust laws, a firm cannot “tie” the sale of a desirable product to an undesirable product…apparently unless you are a multi-billion dollar Wall Street brokerage firm.

The Court’s rationale is rather pitiful. They claim this issue is the jurisdiction of the SEC because the securities industry is so complex that the court system won’t be able to understand what is and isn’t allowable under the law. But the SEC has shown time-and-time again that they will side with the brokerages to limit their exposure. I guess the billions in quarterly profits isn’t enough?

Unfortunately, it’s going to get a lot worse for investors before it gets better. Two other cases are likely to be heard by the Supreme Court featuring the investors of two companies: Tellabs and, of course, Enron. In Tellabs, the CEO is alleged to have deceived shareholders by his upbeat comments about the company’s performance when in fact, the situation was dire. Sound familiar?

The S.E.C. has not surprisingly taken the opposite side of the investors suing Tellabs. What it all boils down to is a perfect storm for investor rights. While the SEC and the Supreme Court are limiting the liability for laws already on the books, the Paulson committees are seeking the change laws to more favor Wall Street and Corporate America.

So what’s an investor to do? At the risk of sounding exceedingly grim, I’d say stick your money under the mattress until Congress get’s involved. Unfortunately it’s going to take another Enron blow-up for that to happen.


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