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Supreme Court Weighs Third Parties' Fraud Liability

Publication Date: 
October 10, 2007
National Public Radio
Nina Totenberg

Professor Joseph A. Grundfest is featured in a National Public Radio story about his role in the current Supreme Court case about third party fraud liability:

Former SEC Commissioner Joseph Grundfest, who now teaches at Stanford Law School, says nobody is arguing that what the vendors did is legal. "The question instead is whether, in addition to prosecution by the SEC, and in addition to the prosecutions that can be brought by the federal government criminally, there should also be the ability for private parties to seek money damages layered upon this? And to that question, the answer is no."

Grundfest contends that if Congress wanted to give investors the right to sue third parties like the vendors for damages, it has had plenty of opportunity to do that in the aftermath of the Supreme Court's 1994 decision ruling aiders and abettors out of bounds for such lawsuits.

But, Congress didn't take any action — even when asked — observes Grundfest. And the vendors here are just aiders and abettors.

"The plaintiffs are engaging in a level of prestidigitation that I just don't think isn't going to fool anybody here," he says.


"The rules for calculating damages in these private class-action lawsuits are absolutely insane," Grundfest says. "You can have a company that was involved in a very small amount of alleged wrongdoing in one of these transactions becoming exposed to billions and billions of dollars of damages in these private class action lawsuits."