Posted by Todd Zywicki:
Stoneridge:
http://volokh.com/archives/archive_2007_10_14-2007_10_20.shtml#1192735339
I just came across [1]this essay: essay by Richard Epstein on the
Stoneridge case. The whole thing is interesting, but here's an
extended excerpt:
Yet, normatively speaking, why should secondary violators be able
to escape private damage suits like those brought against primary
wrongdoers? One way to end the discrepancy is to deny all private
damage actions against primary offenders, which is not as
farfetched as it sounds.
The key vice of these private suits is to overdeter wrongful
conduct. For example, the class that sued Charter let all
unfortunate buyers at inflated prices recover for their market
losses. But it does not require the lucky sellers of overpriced
stock to disgorge the fortuitous profits from selling overpriced
stock. The net damage recovery from this temporary imbalance in the
markets far exceeds the social losses from the underlying
chicanery. Across the board, harsh penalties for nondisclosure now
induce firms to remain silent lest they incur huge liabilities for
modest misstatements. Administrative remedies can be better
calibrated to the severity of the underlying wrong.
Even if a damage suit against primary wrongdoers makes sense, the
second round of suits is overkill. Allow this suit against
Scientific-Atlanta and Motorola, and then no iron barrier protects
any vendors from charges of "knowingly" engaging in fraudulent
transactions with hundreds of potential buyers who thereafter
mischaracterize these deals in their own financial accounting. Just
what fraction of the total loss is attributable to their actions as
opposed to other financial gimmicks? And should secondary actors be
held liable for all losses if it is hard to isolate a distinct
fraction for which they are responsible? The current law of joint
and several liability suggests that no apportionment will be made
unless it can be made.
Imposing crushing litigation burdens on second-tier defendants who
receive no direct benefit from the public fraud is a heavy-handed
way to improve transparency of securities markets. The expanded
liability has two vices: First, it chews up huge social losses in
litigation costs that detract key executives from their major jobs.
Second, it leads to erroneous findings on liability rates of error
whereby some innocent defendants pay large sums while some guilty
parties go free. No system that costly and erratic supplies
effective deterrence against fraud.
References
1. http://www.pointoflaw.com/columns/archives/004373.php
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