Shareholder Lawsuits and the Supreme Court

Three former officials at the Securities and Exchange Commission, two Democrats and one Republican, filed an amicus brief in the case Stoneridge Investment Partners v. Scientific-Atlanta, Inc., in what is apparently a very important case dealing with shareholder lawsuits. From what I can tell, shareholders of Charter Communications are suing Motorola and Scientific Atlanta for misleading them on how they chose satelite and cable providers. I am not smart enough nor informed enough on the subject to offer a assertive opinion on the case or the issue at hand, but the subject interests me greatly. It has been my experience that the layman fails to grasp the true essence of a market, and just sees it as a place to gamble with money. The most underappreciated aspect of financial markets is the reliance on the ability to process information quickly. "An efficient market is one where information is quickly interpreted and is evident in the asset price".

I do not profess to be an expert, but from my experience, it seems to me that a shareholder's ability to sue the majority owners and/or board of directors for withholding information is a pivotal aspect of a market. During the Clinton years, there was a much stronger push towards individual stock ownership. This likely had little to do with Clinton, and was a more a result of the advent of the internet and new waves for individuals to own stocks. That phenomenon seems to have waned (probably in large part to the recession after the tech bubble burst). It my opinion and preference that the courts' emphasize shareholder rights in lawsuits to try and maintain as fair a market as possible. Institutional investors will always exist, but individual investors may not. For their part, it is up to individual investors to gain a better understanding of the rights and duties associated with owning stock, and take a more proactive role in ownership of the company.