James Fanto on the "Bad Apples" Perspective on Corporate Scandals

James Fanto on the "Bad Apples" Perspective on Corporate Scandals

Professor James Fanto discusses the United States Supreme Court decision in Stoneridge Investment Partners, LLC. v. Scientific-Atlanta, Inc. 2008 LEXIS 1091. That case held that participants in a public company's fraud may not be sued by investors under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated by the Securities and Exchange Commission under that Act, unless those participants made the statements or representations that the investors relied upon in their securities trading. Professor Fanto writes:

 

[I]n its decision the Court ignores institutional and organizational reality about corporate scandals and financial fraud (it is certainly not alone in this). As seen in earlier scandals and contrary to what the Court suggests, corporate fraud is almost always the product of more than one or two ‘bad apples’ in the executive suites or boardroom. It is also generally the outcome of a scheme in which numerous participants, inside and outside a company, are actively involved.

 

 

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