High Court Restricts Investor Class Actions
The Supreme Court made it harder Tuesday for investors to join forces to file high-stakes fraud lawsuits against companies.
The 8-0 decision blocks state class-action lawsuits by stockholders who contend that they were tricked into holding on to declining shares.
Justice John Paul Stevens, writing for the court, said that to rule otherwise would allow “wasteful, duplicative litigation.”
The decision does not shut the door to lawsuits filed by individual stockholders, but rather to suits brought on behalf of large groups.
“There had been some upswing in these after the Enron and WorldCom scandals,” said Columbia Law School professor John Coffee.
It was a major victory for Merrill Lynch & Co., which faced a spate of lawsuits prompted in part by New York Atty. Gen. Eliot Spitzer’s 2002 probe into the investment banking firm’s practices.
Spitzer uncovered records showing that Merrill Lynch analysts publicly recommended that investors buy stocks that were described privately as a “disaster” or “dog.”
Merrill Lynch agreed to a $100-million fine.
Former Merrill Lynch brokers said the company’s rosy appraisals caused them to give bad advice and lose customers.
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