IN THE complex world of securities transactions, it can be hard to tell the good guys from the bad guys, but the federal Securities and Exchange Commission is supposed to know the difference.
Since the financial meltdown of 1929 that precipitated the Great Depression, the SEC has been charged broadly under federal law with protecting the rights of stockholders large and small against fraud.
So why, then, it's fair to ask, is the SEC preparing to do just the opposite - take the side of big Wall Street investment banks as they fight off investor lawsuits in what's left of the $40 billion Enron fraud case?
News reports indicate the federal regulator is on the verge of intervening in lawsuits soon to reach the United States Supreme Court with the aim of protecting the banks at the expense of shareholders.
The SEC has taken similar anti-shareholder stances in the past couple of years and in February, SEC chairman Christopher Cox declared that accounting firms similarly needed to be protected against such "fraudulent lawsuits" filed by what he termed "professional plaintiffs."
While we have long opposed frivolous litigation, this is anything but frivolous.
In March, the federal appeals court in New Orleans took the side of Merrill Lynch & Co., Barclays, and Credit Suisse First Boston and threw out an investor claim by drawing a narrow distinction between a "fraud scheme," which is plainly illegal under federal law, and "aiding and abetting" fraud. Under a previous Supreme Court decision, simply "aiding and abetting" fraud is not cause for holding the banks liable, the court held.
That's legal weaselry, not justice, and if the Supreme Court were to adopt such reasoning, the banks would be off the hook - even though the appellate judges conceded the bankers did precisely what they're alleged to have done.
These documented acts included the purchase of Nigerian barges from Enron, sham transactions to hide the company's debt, and commodities deals in which the goods were never delivered.
Moreover, Andrew Fastow, Enron's former chief financial officer, who's serving a six-year sentence in federal prison for wire and securities fraud, has testified in detail how the banks frequently took the lead in coming up with ingenious - and illegal - ways to make the company's financial position appear better than it really was.
Several other Enron bankers, including Citigroup, JPMorgan Chase, and CIBC already have paid more than $7 billion to settle similar shareholder claims.
Why SEC members feel compelled to protect the rest of the guys in the black hats, only they can explain.