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During the summer, a high drama played out within the Bush administration involving the U.S. Securities and Exchange Commission (SEC), the U.S. Department of Justice, Congress, Wall Street banks and victims of securities fraud � with a spotlight on the Enron meltdown. The underlying battle, now before the U.S. Supreme Court, concerns whether investment banks and other third parties that work hand-in-glove with the WorldComs of the world � creating sham loans and cooking books � can be brought to justice by their victims. The result, in a case called Stoneridge, will have enormous consequences for investors’ ability to recover monies against those who purposefully enable others to lie to the markets � the silent partners in corporate fraud, insider trading and stock manipulation. Although so far these events have been relegated to the financial pages, this is not just some legal technicality. With the Dow Jones Industrial Average bouncing like a pingpong ball, the integrity of the American markets has taken on even greater importance. Volatility begets fraud, as when the tech bubble burst. That is why the inside-the-Beltway battle was so fierce over whether the White House and its lawyer, Solicitor General Paul Clement, would come down on the side of the victims or of Wall Street. That is why, when Clement declined to file the brief recommended by the SEC, others were not so reticent, including past SEC chairmen, heads of the House banking and judiciary committees and 35 state attorneys general, Republican and Democrat, all filing briefs in support of investors and “scheme liability” � holding accountable liars and enablers alike. And that is why it was more than just an unfavorable judgment call when the Bush administration, rejecting the advice of senators like Arlen Specter, R-Pa., and Christopher Dodd, D-Conn., and ignoring the formal vote of its own SEC and its Republican chairman, Chris Cox, recently chose to support those who commit fraud from behind the curtain. Indeed, just how and why that decision was reached presents a cautionary tale. It reflects the serious threat posed to the rule of law by what historian Kevin Phillips has described as “the fusion of money and government.” Among those closely watching this case are victims of the greatest “Ponzi scheme” in history, the Enron fraud. Tens of billions of dollars were lost by millions of Americans from just such illegal schemes concocted by Enron executives but with enablers, like Merrill Lynch, acting from behind the scenes and garnering large fortunes as a result. The Enron trial against those banks was stopped dead in its tracks when the 5th U.S. Circuit Court of Appeals found there should be no liability for those who knowingly empower others to lie to an unsuspecting public. This country is blessed with the world’s toughest securities fraud laws. Like our Bill of Rights, their genius is their simplicity. For example, the law prohibits anyone from engaging in “any manipulative or deceptive device or contrivance.” Therefore those who create deceptive devices, as the banks did in Enron through sham loans and falsified balance sheets, have commit fraud and should be held accountable. But that principle is now in jeopardy. In years past, shareholders took on these third-party fraudsters in private litigation for “aiding and abetting” others that spoke falsely. But a few years ago, in Central Bank, the Supreme Court ruled that only the government and not private victims of fraud could contest aiding and abetting. So shareholders now typically sue the third parties for directly engaging in the illegal scheme. It is their ability to do so that is now squarely before the Supreme Court. We all benefit from the truth about a company’s financial condition; we all suffer from falsehood. And as our laws are now structured, a victim of fraud can get his money back only through a private lawsuit since the SEC is limited by law to imposing penalties. Thus, to deny such private enforcement would dramatically undermine the fundamental purposes of our securities laws � recovering losses, deterring fraud and promoting honest dealings. Initially, the SEC actually voted to file its own brief in support of victims of fraud, whether committed by the liar or the enabler. But enter Henry Paulson, the past chairman of Goldman Sachs (an Enron defendant), who is now Treasury secretary. On a conference call with President Bush and Clement, Paulson is said to have argued that holding third-party schemers liable would be bad for business � by making U.S. markets less competitive against their foreign counterparts. He won the argument; the SEC was prohibited from filing its brief. The American people lost. And now, your government filed a brief supporting Wall Street and opposing you. As more power is vested in corporations, banks, insurance companies and business generally, the “little guy” is left in greater jeopardy of being trampled. The only recourse for such victims of greed and abuse is the government; it is the essence of the social contract. But that contract has repeatedly been breached of late: when government regulators come from the very industries they are supposed to regulate, when U.S. attorneys become political pawns instead of champions of justice � and when big business uses the backdoor to the White House to get its views heard in the Supreme Court.

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