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Monday, Jun 20, 2011 10:37 PM UTC

The Supreme Court’s get-out-of-jail-free card for Wall Street

The highest court of the land just made securities fraud a whole lot easier

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Topics: Wall Street, How the World Works, Mortgage Crisis, Supreme Court,

The Supreme Court's get-out-of-jail-free card for Wall Street

Let’s hope that the current Supreme Court is remembered by posterity as the absolute peak high point in judicial willingness to kowtow to corporate interests. Because if it gets any worse than now, it’s hard to see any way forward for such antiquated concepts as democracy or level playing fields or simple justice.

Case in point: Last week’s decision to absolve the management of an investment fund, Janus Capital Group, for any legal responsibility for misleading information contained in prospectuses for mutual funds created under the supervision of Janus.

The fund industry is cheering, and rightly so. The best explanation for what’s at stake is provided by Steve Waldman at interfluidity.com but the essential point is simple. The Supreme Court just made it much, much harder for shareholders in mutual funds to sue the operators of those funds for exactly the kind of misrepresentations and malfeasances that were at the heart of the mortgage lending securitization fiasco that blew up the financial system and crashed the economy.

Waldman:

The Supreme Court’s decision in Janus is a license to lie. And it is backdated. The statute of limitations on Rule 10b-5 actions is five years. Perhaps naively, I had hoped that some of the egregious fraud of the securitization boom would be punished by investors, despite the “let’s look forward,” see-no-evil attitude of the regulatory community. Thanks to Janus, lawsuits-in-progress may be disappearing as we speak. Lawsuits regarding the particularly rancid 2006 / 2007 vintage of securitizations may never be filed. Going forward, if you are considering an investment in a mutual fund or ETF, you should understand that you will have little recourse if information provided in the prospectus turns out to be misleading or incomplete, even outright fraudulent. Perhaps you are comfortable relying solely upon your fund managers’ reputation, perhaps not. If you have a say in how a pension fund or endowment or bank invests its money, I can’t imagine why you’d permit investment in any sort of securitization while you have no meaningful assurance that what is being sold to you is actually what you are buying, even or perhaps especially if the deal is being offered by a big, famous, “deep-pocketed” bank.

Read Waldman’s entire post. And weep.

 

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21. More Andrew Leonard.

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