U.S. Supreme Court Makes It Harder to Sue Companies for Defrauding Investors

Rebecca Castell

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In a painful example of the pro-business, anti-consumer attitude of the current US Supreme Court, the Court ruled that investors who want to sue companies and executives for fraud have a higher burden to meet to get their case to court.

The court on Thursday waded into the debate on the defendants' side. By a vote of 8 to 1, it said that investors must show "cogent and compelling" evidence of intent to defraud -- a standard that makes it easier for companies and their executives to get shareholder complaints dismissed.

While business groups and powerful lobbyists tout the decision as helpful in fighting out "baseless allegations of securities fraud," statistics show that the number of shareholder derivative actions, where shareholders hold directors responsible for losing money through fraud, have decreased from 497 in 2001 to 57 this year. Frivolous claims? Rather, the republican bench, headed by Samual Alito, is making it next to impossible for shareholders to bring meritorious claims. This allows the corporate malfeasance to continue as companies no longer feel the need to be transparent to investors.

Have the tragedies of Enron and Worldcom slipped from people's minds? These cases showed the worst of what happens when company directors defraud their shareholders, but is it unfathomable to believe that it can happen again? We need to encourage shareholders to bring claims forward so that investors are protected and companies keep their practices out in the open.