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High Court Mulls Corporate Fraud Liability, Rejects Torture Case Appeal

The Supreme Court heard arguments Tuesday about the liability of company banks and accountants in corporate fraud cases and rejected an appeal by a German man who claims the CIA kidnapped and tortured him. Marcia Coyle of the National Law Journal provides an update.

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  • GWEN IFILL:

    In a case that contains echoes of Enron, the court is being asked to decide whether shareholders can sue third parties, like banks and accounting firms, for fraud committed by the company they invested in. NewsHour regular Marcia Coyle of the National Law Journal was in the courtroom, as always, today, and she joins us now. Hi.

  • MARCIA COYLE, National Law Journal:

    Hi, Gwen.

  • GWEN IFILL:

    I heard this described as the Roe v. Wade of securities law. How big a deal was this? And how did it end up at the court?

  • MARCIA COYLE:

    I even heard it described as the Brown v. Board of Education of securities fraud today. It is a big case. A lot of money is potentially involved, not necessarily in the case that was argued today, but, as you mentioned, in the background is looming the Enron fraud.

    Shareholders of Enron already have a petition pending in the Supreme Court relying on the same sort of argument that the case today, the investors in that case were urging the justices to accept.

    The case today involved Charter Communications, which is one of the largest cable providers in the nation. Charter was having cash flow problems. In order to meet Wall Street expectations, it came up with a scheme to inflate its balance sheet, basically.

    It agreed with two of its vendors of cable boxes for televisions to overpay them by roughly $17 million on condition that the vendors would take that money and buy advertising from Charter, thus inflating its balance sheet.

    When the scheme was revealed, the stock price tanked. Investors lost a lot of money. They sued Charter and the vendors. The Securities and Exchange Commission also went after Charter Communications criminally and civilly.

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