Bush takes swipe at lawsuits

The White House is saying that the SEC, and not individual investors, should be the ones suing third parties - folks like investment bankers or accountants - for securities fraud that involves the companies that hire those third parties. This is a pretty big deal because it pits class-action proponents and frivolous lawsuit opponents. Al Hubbard, Bush's chief economic adviser, told the AP that "the SEC is the right entity to bring those lawsuits and make sure investors are protected." President Bush himself was supposedly involved in the decision not to file a brief on behalf of investors suing Charter Communications, the big cable company that's controlled by billionaire Paul Allen. The lawsuit, which is before the Supreme Court, accuses Charter of adding $17 million in phony revenue by overpaying for set-top boxes it bought from Motorola and Scientific-Atlanta. In return, those two companies agreed to purchase advertising on Charter's cable systems. The phony revenue, according to the suit, allowed Charter to mislead investors about its financial performance.

The issue before the court: whether shareholders can collect damages from investment banks, attorneys and accountants believed to have been involved in the fraud. Class action super-lawyer William Lerach, who faces his own legal troubles, wants the Supremes to take up a similar suit that accuses Enron's investment banks of helping commit fraud. And here's a twist: Last week, SEC Chairman Christopher Cox, who was appointed by Bush and has been accused of favoring companies at the expense of investor, broke ranks with the agency's Republican members to back investors in the Charter case.

It's worth noting that Charter is not exactly a terrific company. Consider this BW opinion piece about a year ago:

Allen answers to no one, not even his top executives, whom he goes through like Dixie cups. In August, 2002, the FBI, Postal Inspector, and U.S. Attorney's office announced investigations into executive actions at Charter. Shortly thereafter, the company restated two years' worth of financial results, adding $2.6 billion to liabilities, and it disclosed an SEC inquiry into its accounting. The chief operating officer and chief financial officer were fired en route to being indicted for wire fraud and conspiracy and inflating Charter's subscriber count. (They were each sentenced to a year in jail.) It took more than a year for the company to hire a permanent CFO, who would last only seven months on the job. Its CEO at the time ended up resigning, too. As if all of that weren't embarrassing enough, word got out a year ago that Charter's board of directors was on the brink of suing Allen himself to force him to exchange preferred shares that he bought for $700 million in a cable transaction for the equivalent in common stock, something he promised to do in a 2002 agreement.

So to sum up, this is the company shareholders are not supposed to be able to sue. It's an interesting way of looking at things.