Stoneridge and Ununited Amici: "Each individual amicus may not endorse every argument presented" (Part 3)

We are discussing the Brief filed by a number of luminaries in support of Respondents in Stoneridge.  The Brief has been posted on the DU Corporate Governance web site.  We note that the Brief noted specifically that not all amicus endorsed every argument presented.   

The Brief asserts that the imposition of liability on "ancillary" actors will not increase deterrence in any meaningful way.  See Brief, at 19 ("In light of the amount of deterrence that already exists, it is far from clear that the additional marginal deterrence that right result from implying private “scheme liability” is even necessary.").  Instead, the enforcement authority of the SEC (and the Justice Department) are enough to deter.  As the Brief notes:  "Those who assist another’s primary violation of Rule 10b-5 already face significant sanctions at the hands of public enforcers; it is therefore far from clear whether the additional marginal deterrence that might result if private “scheme liability” were recognized is even necessary." 

Marginal deterrence?  We offer several thoughts on this.  First, if that is the case then presumably the entire private bar is a marginal deterrent.  To the extent that there is a belief that the private bar deters securities fraud in the case of public disclosure by issuers (does anyone seriously doubt that the threat of litigation at least sometimes changes behavior inside public companies?), this Brief does not explain why the deterrence applies there but not in the case of ancillary actors.   

Second, it is a bit of a surprise that those signing on to the brief are making this argument (well, some may not be given that each individual does not endorse every argument).  Ask any issuer what they fear more:  An SEC enforcement action or private litigation.  There will be a chorus in response.  It is private litigation that strikes the most fear.  We are not contending in this Blog that private litigation is always good or that it can't withstand reform but the argument that it does not result in significant deterrence conflicts with the facts on the ground.   

Finally, we note the inconsistency with the objection that private actions essentially involve payments from "innocent" shareholders to "injured" shareholders.  So do penalties imposed by the SEC.  While the payments may or may not go directly to injured shareholders, they still reflect out of pocket payments essentially made by "innocent" shareholders.  Moreover, I doubt that the penalty comes from insurance proceeds but is likely paid right from the corporate coffers.  In other words, its more likely to be paid by "innocent" shareholders than a private settlement.