U.S. Treasury Secretary Henry M. Paulson Jr. said last week that allowing victims of business fraud to file class-action suits against third parties would have “enormous implications” for the U.S. economy.
“My concern here is exposing all kinds of third parties to primary liability without clear lines is a risk to our economy, our competitiveness and jobs,” Paulson said Wednesday at a House Financial Services Committee hearing.
The Bush administration has declined to back investors in a case the U.S. Supreme Court will consider later this year, breaking with the U.S. Securities and Exchange Commission. SEC Chairman Christopher Cox asked the Justice Department to side with investors in a securities-fraud case involving Motorola Inc. and Cisco Systems Inc.
The administration has expressed concern that so-called third-party lawsuits – those targeting a company’s business partners – would harm the economy. That’s also a setback to lawsuits that accuse Enron Corp.’s investment banks of helping defraud shareholders out of billions of dollars. Enron shareholders are suing the bankrupt energy trading company’s banks, including Merrill Lynch & Co. and Credit Suisse Group.
“You and the administration are standing in the way” of protecting investors, said U.S. Rep. Maxine Waters, D-Calif.
Paulson responded that he had the Treasury send a letter to the solicitor general on the matter because “I thought it had enormous implications for the U.S. economy.”
Allan Hubbard, director of President George W. Bush’s National Economic Council, had told reporters June 12 that the lawsuits should be brought by the SEC itself rather than investors. He warned of economic harm from an “overly litigious” society.
