Larry Ribstein has a great post on a Snarlin' Arlen Specter bill that would, among other things, undo the Supreme Court's decision in the Stoneridge case. The effect would be to dramatically increase the class of potential defendants in securities cases by imposing potential liability on those who "aid and abet" violations. The consequences would be severe and adverse to the competitiveness of US capital markets (for more the effect of litigation on that market, see here). As the Supreme Court explained in the Stoneridge case:
The practical consequences of an expansion [of the Rule 10b-5 cause of action], which the Court has considered appropriate to examine in circumstances like these, provide a further reason to reject petitioner?s approach. In Blue Chip, the Court noted that extensive discovery and the potential for uncertainty and disruption in a lawsuit allow plaintiffs with weak claims to extort settlements from innocent companies. Adoption of petitioner?s approach would exposea new class of defendants to these risks. As noted in Central Bank, contracting parties might find it necessary to protect against these threats, raising the costs of doing business. Overseas firms with no other exposure to our securities laws could be deterred from doing business here. This, in turn, may raise the cost of being a publicly traded company under our law and shift securities offerings away from domestic capital markets
Specter has always been a friend of the trial lawyers, but even so one suspects that this bill is designed to cement their support in the upcoming Democrat Senate primary. As a spanking new Democrat, Specter needs to solidify his relationships with key special interest constituencies like the trial lawyers as much as possible.
