The Right to Double Speak
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Landslide Lyndon
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« on: July 15, 2011, 10:43:20 AM »

Sorry if the article is too long, but it's well worth reading it.

http://prospect.org/cs/articles?article=the_right_to_double_speak

One crucial factor behind the meltdown that caused the Great Recession is the assurance many financial firms gave customers that risky investments were safe. In this context, one would think the Supreme Court would watch out for attempts by dishonest financial executives to evade accountability. But in Janus Capital Group, Inc. v. First Derivative Traders, the Court split 5 to 4 along familiar ideological lines, saying that executives could not be held liable for lies contained in literature distributed by a mutual fund managed by the corporation. The decision is as stark an example as one can imagine of the Court’s pro-corporate bias.

...

The tortured reasoning of Justice Clarence Thomas’s opinion rested on hair-splitting about whether Janus Capital executives were actually “making” the statements attributed to them in the literature. Even though the false claims about market timing were made by Janus Capital executives, according to Thomas, they did not “make” the statements in a legal sense. Thomas wrote that “the maker of a statement is the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it.” Since Janus Investment Fund retained this “ultimate authority,” Janus Capital could not be “making” the statements its employees in Janus Investment Fund literature (notwithstanding the near total overlap between the two entities).

If you don’t understand this reasoning, the fault lies with the Supreme Court, not you. As one securities litigator told me, the Court’s newly minted definition of what it means to “make” a statement is “literally unheard of in the history of law.” Breyer’s dissent—which is far more cogently argued and persuasive than the majority opinion—was similarly incredulous. “Every day, hosts of corporate officials make statements with content that more senior officials or the board of directors have ‘ultimate authority’ to control. So do cabinet officials make statements about matters that the Constitution places within the ultimate authority of the President.” By Thomas’s logic, since Press Secretary Jay Carney works at the pleasure of the president, the press is wrong to say that he is “making” statements at a press conference. This argument is so silly as to be self-refuting.

The Court’s opinion provides a blueprint for executives of financial firms who want to profit from defrauding their customers: Just form a subsidiary your company runs, and you can’t be held responsible for lying to the customers who choose to do business with you. And this could have ramifications beyond selling mutual funds with willfully dishonest information. Consider, for example, what could happen to initial public offerings. A parent company could spin off subsidiary and sell the IPO with false documents drafted by the parent company’s employees. If the subsidiary sold its shares and went bankrupt because it was in a much weaker position than was claimed at the time of the IPO, according to the logic of Janus Capital, the parent company would not be responsible even if it knowingly lied to investors.
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