I’ve been meaning to pass along this Peter Wallison/American.com article that does an excellent job of summarizing what is at stake with regard to the U.S. Supreme Court’s review of the Stoneridge Investment Partners v. Scientific-Atlanta case involving the issue of secondary liability for companies that do business with a company that commits securities fraud:

It is an old legal saw that hard cases make bad law, but Stoneridge should not be a hard case. The legal principle advanced by the plaintiffsóthat persons unrelated to the statements that constituted securities fraud could be held liable for the plaintiffsí lossesówould be impossible to restrict or cabin in any effective way. Every party that engaged in ordinary commercial transactions with a public company in the United States could later be accused of participating in a securities fraud if the commercial transaction itself could be characterized as fraudulent or deceptiveóeven if the commercial transaction was not understood by the defendant to be part of a securities fraud.

Like this.

This Bloomberg article on Austin-based Whole Foods’ proposed acquisition of Wild Oats Markets confirms that officials at the Federal Trade Commission do not have enough to do:

U.S. antitrust regulators plan to file suit to block the proposed merger between Whole Foods Market Inc. and Wild Oats Markets Inc., the largest and second- largest natural-foods grocers. [. . .]
The agency is concerned that the combined company will control too much of the U.S. natural-foods market and increase prices. . .
“If Whole Foods is allowed to devour Wild Oats, it will mean higher prices, reduced quality, and fewer choices for consumers,” Jeffrey Schmidt, director of the FTC’s Bureau of Competition, said in a statement. “That is a deal consumers should not be required to swallow.”
The commission voted 5-to-0 to authorize staff to seek a temporary restraining order.

I mean, what on earth are these people at the FTC thinking? Since they haven’t moved to block a retail merger in a decade that it’s time to try and block one? What else could explain attempting to block a relatively small $600 million deal that would result in a combined company with just over 300 stores? Besides, it’s not as if Whole Foods is doing all that great, anyway.
The FTC seems to be saying that Whole Foods and Wild Oats are in a different market than conventional grocery chains. But that’s just plain silly. Not only will customers move to non-organic products if Whole Foods and Wild Oats price an organic alternative too high, virtually every retail grocery operation is now offering their own organic section in their stores. For goodness sakes, even Wal-Mart is offering an organic product section in many of its grocery stores these days.
Dana Cimilluca over at the WSJ DealJournal speculates that the FTC action is a pure political move to chill the overheated merger market. Maybe so, but that’s sure a petty reason to deny a relatively small group of shareholders an opportunity to realize some increasingly rare equity upside in the brutally competitive grocery business.

American Enterprise Institute’s Ted Frank provides this excellent WSJ ($) op-ed on the stakes involved in the upcoming Supreme Court decision in Stoneridge v. Scientific-Atlanta, which could seriously erode the Central Bank rule against holding financial institutions secondarily liable for damages in providing financing for a company that defrauds its investors. As usual, Professors Ribstein and Bainbridge do a fine job of explaining why it would be poor public policy to undermine the Central Bank rule, while J. Robert Brown makes the case for expanding secondary liability.
But policy reasons aside, there is a practical reason why the Supreme Court should uphold the Central Bank rule. The Court is currently considering whether to expand the Stoneridge v. Scientific-Atlanta case to include the review of the denial of class status to the plaintiffs in the main securities fraud lawsuit against several investment banks that provided financing for Enron. One of the myriad of claims in that case is one based on the much-discussed the Nigerian Barge transaction that has already resulted in the unjust conviction and imprisonment of four former Merrill Lynch executives. The plaintiffs in that Enron securities fraud case contend that Merrill should be held liable for billions of dollars in damages resulting from Enron’s demise because Merrill purchased an interest in the barges that allowed Enron to book $12 million in allegedly false earnings.
So, the Enron securities fraud case provides a preview of what we will get from erosion of the Central Bank rule: Help arrange $12 million in earnings = liability for billions of dollars in damages.
I don’t see the Supreme Court buying that math.

The Wall Street Journal’s Nathan Koppel has authored an excellent review (W$J article here) of the demise of Dallas-based Jenkens & Gilchrist (prior blog posts here), which shut down earlier this year after mass defections and an expensive settlement with the federal government. Koppel’s piece follows this earlier Dallas Morning News article that does a good job of chronicling the demise of the firm.
Given that the former leaders of the firm candidly admitted that the firm took big risks in the tax shelter business in order to generate increased profits, Larry Ribstein makes a typically insightful observation about how strict regulation of law firm structure may have contributed to the firm’s questionable risk-taking:

It is at least worth exploring whether freeing law firms from these constraints would produce more responsible firms. Jenkens is another reminder that it is folly to assume that such an innovation would besmirch some Platonic ideal of non-profit-oriented professionalism that law firms currently adhere to.