Arlen Specter....Looking Out For Arlen Specter

While there may be a need for some of the reforms in the behemoth financial services reform bill, Restoring American Financial Stability Act S 3217, being debated this month in Washington, one amendment offers our friends in the trial bar an opportunity to resume their attempt to overturn an important TWO Supreme Court cases to increase their ability to bring frivolous class action law suits - because clearly, we don't have enough frivolous actions already.

But who would offer such an amendment?...You guessed it one-time Republican Senator Arlen Specter (D..err R...err, D-PA) would overturn TWO US Supreme Court opinions and provide a private right of action for aiding and abetting securities fraud. The amendment essentially mirrors the Liability for Aiding and Abetting Securities Violations Act, S. 1551, introduced by Sen. Specter in 2009. The amendment (SA 3776) would legislatively overrule two decisions of the Supreme Court’’, namely the 1994 Central Bank of Denver v. First Interstate Bank ruling and the 2008 ruling in Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc.

Those decisions reined in “scheme liability”—a theory of liability used by trial attorneys to circumvent securities laws. If adopted, it would have had dire consequences for investors and the economy. Appropriately named, “Scheme liability” would invite nearly any business that had a commercial relationship with any other company alleged to have engaged in fraud straight into Specter's new wheel house of trial lawyers; regardless of their knowledge of said fraud. In these perilous economic times, (soon to be former) Senator Specter has proven he is more than willing to expose a sizable portion of the economy to expanded liability in securities class actions that will hurt companies, their employees and injure investors - in the interest of satisfying his (new liberal) base.

The SEC already has the power to bring an action against companies that help to perpetrate a fraud, and they are aggressive in their prosecution of these types of cases. Congress should leave well enough alone and not hand the trial bar another tool to force legitimate law abiding businesses into multi-million dollar settlements.

But who knows...maybe Arlen will change his mind again....