I Hate It When My Cynicism is the OPTIMISTIC Version
I wisecracked yesterday chez DeLong that, given the current political climate, I wouldn’t invest in a company without political connections using his money, let alone my own.
What I didn’t realize at the time was that the Supreme Court already had decided earlier yesterday that investing in mutual funds should be a hazardous activity:
Janus Capital Group Inc (JNS.N) and a subsidiary cannot be held liable in a lawsuit by shareholders over allegedly false statements in prospectuses for several Janus mutual funds, the U.S. Supreme Court ruled on Monday….
Janus, in appealing to the Supreme Court, argued that the funds were separate legal entities and that neither the parent company nor its subsidiary was responsible for the prospectuses and could not be held liable.
Janus, being the two-faced G-d of Theatre, would approve of his namesake’s claim: “Well, we own the company, we paid for the prospectus, we marketed the prospectus, we made assurances to investors based on our Due Diligence about the prospectus—why would you blame us if something goes wrong?”
Or, for the positive spin,
Mark Perry, the attorney who represented Janus, said he was delighted the Supreme Court agreed with the company’s position that only the party ultimately responsible for a statement can be sued for fraud in such private investor lawsuits.
“The court’s clarification of the scope of primary liability under the securities laws is important not just for the parties to this case, but for all participants in the securities markets, including bankers, lawyers, accountants, and investment advisers,” he said.
We knew nothing. We always Know Nothing. You are paying us for our “expertise,” but We Know Nothing.
Gresham’s Law will follow:
William Birdthistle, an associate professor at the Chicago-Kent College of Law who had written an amicus brief on behalf of First Derivative Traders…said the ruling’s most dramatic impact could be to encourage other industries to adopt the split management structure of the mutual funds sector as a way to avoid liability.
“What this ruling says is that as long as there are separate legal entities, even if management totally dominates all aspects, there’s no liability,” Birdthistle said. “This is going to open the eyes of those not in the funds industry who are going to say: ‘Wow, those guys are bulletproof’,” he said.
“Bulletproof” is not something you want in someone who is supposedly representing your interest.
Anyone stupid enough to invest in the U.S. mutual fund industry after this ruling must be someone who believes they’re “managing my 401(k) to take control of my future,” even though the company only offers three options, one of which is Company Stock.
The next time someone tells you about the evils of Moral Hazard, assure them that the Supreme Court doesn’t believe in it.
Actually I can see how this ruling fits with how the legal profession view responsibility. You hire a lawyer, you follow their advice while in court, on the stand and they even talk to the judge on your behalf. Yet, if they did it wrong, didn’t quite get the understanding correct, or were incomplete, etc. , the ruling comes down as if you did it all by your self.
What a racket. The world did not end. Is it God’s fault or the messengers fault? NO, it is your fault for believing.
Not sure what’s got you so het up here. It’s a standard of Common Law that you can’t “pierce the corporate veil”.
The corporate entity that mislead investors is guilty as hell. The corporation which owned that corporation ain’t. Just as the shareholders of a corporation aren’t liable for the debts of the corporation. A BP shareholder doesn’t owe money to victims of Macondo. Indeed, BP could have put its US subsidiary into bankrupcy and told everyone to go swivel.
It’s entirely normal that people (whether corporations or individuals, pension funds, whatever) are not responsible for what is done by the corporations they own shares in.
It is actually called limited liability for a reason you know.
Actually, you can pierce the corporate veil under certain circumstances and this sounds like a case in which it should have been possible. My problem with this is that people are FORCED to invest in these stinking mutual funds and to enrich the stinking fund managers by law which makes 401K savings invested in the limited selection of funds specificed by an employer tax exempt. I don’t understand why more people don’t protest tax laws which necessitate investment in 401 K plans. Why can’t we have tax exemption for more choices as a matter of law, e.g. ordinary CDs, treasury bonds, etc. I don’t want to make Wall Street louses richer than they already are and why should I?
I suppose that that is taking the concept of the corporation to its logical extreme, no one is responsible for anything. So how is any one who can shield his behavior within a corporate cocoon to be held accountable for loss caused by the shielded entity. The early idea a corporate structure was to hold the individual share holders outside of the potential financial losses of a business enterprise beyond the investment made in that entity. Now the activities of the entity can be shielded from all harm done. Is anyone responsible for anything?
Obviously, if you own shares of Walmart, say, and Walmart does something untoward, it isn’t your fault or responsibility. Nobody associates you with Walmart’s behavior.
But from what I can tell, the funds would have a lot less value and less ability to bring in clientelle without the Janus name. I imagine advertising is done in Janus’ name, and some big decisions are made by Janus itself. That ties them pretty close to Janus.
Actually a director or officer can be held responsible for corporate acts, but shareholders can not beyond their investment. That is the whole point of a limited liabilty company. In addition the common shareholders are at the tail end of the money chain if a company is dissolved or put in BK. (See old GM or Motors Liquidation for an example).
However if a director or officer takes an action they can be held responsible. In this case it would have to be a director or officer of the fund. Of course there is likley no blood in that turnip.