Our own Ted Frank has an op-ed in today's Wall Street Journal. Excerpt:
...The plaintiffs' bar is heavily lobbying the SEC to intervene in a pending Supreme Court case, Stoneridge v. Scientific-Atlanta, on the side of a gigantic expansion of private litigation.
The case's facts are straightforward: Charter Communications purchased set-top cable boxes but got back some of the money in the form of advertising bought by the vendors. Charter executives recorded the outgoing money as a "capital expenditure" (to be depreciated over several years) but the incoming money as revenue recorded within a single year, thus falsely inflating operating cash flow. Three Charter executives went to prison over the shenanigans. Plaintiffs' attorneys sued Charter and the executives, of course, but named as codefendants two of the vendors, Motorola and Scientific-Atlanta.
The suit makes little sense. The vendors had no say in how Charter accounted for or reported its transactions. Worse is the precedent it represents: How can a business function if it is potentially liable for hundreds of millions because those whom they trade with misreport a day-to-day transaction?...
Indeed, a 1994 Supreme Court decision on its face cuts off such "secondary liability" claims, but hope of reviving them springs eternal in the plaintiff's bar -- one reason for the P.R. campaign aimed at putting pressure on officials like SEC Chairman Chris Cox. (Ted Frank, "'Arbitrary and Unfair'", Wall Street Journal, May 31)(sub-only). Plus: here's the free AEI version.