Thursday, April 21, 2005

US Supreme Court Says Lying Is A-OK

When I was a wee lad, I was taught that lying and cheating are wrong. Yes, both might seem to get one ahead, but sooner or later, the piper had to be paid. So you must understand my shock in reading an article in yesterday's Wall Street Journal entitled "Supreme Court Reins in Suits by Shareholders".

Here's the situation: Dura Pharmaceuticals Inc. lied to stockholders about two of its products, its sales and its revenue. When these lies (the WSJ calls them "misrepresentations") were exposed, the company's stock fell 47% in one day and continued to fall precipitously. Several shareholders took them to court to get their money back.

The original court decided against the plaintiffs, but a Federal Appeals Court reversed that verdict. Unfortunately, the US Supreme Court in a UNANIMOUS decision agreed with the verdict by the original court of jurisdiction. In other words, the message from the high court to the stockholders was "Tough Luck!"

The reasoning of the Supreme Court is what baffles me. No one is disputing the fact the company out and out lied. However, the Supreme Court indicated that the stockholders did not prove that the undisputed lies directly caused the stock price to fall.

At the beginning of the day on February 24, 1998, Dura stock was $39.125. It was on this precise day that the company admitted it had lied to its stockholders. At the close of the day, the stock had fallen 47% to $20.75 per share.

This is an obvious example of cause and effect. The bottom dropped out on the stock price ONLY after the company was forced to 'fess up. To say that there is no direct linkage is preposterous!

If this particular case does not show a direct cause and effect, what would?

It almost sounds like our high court is saying that being caught lying and cheating is not enough, that a company can lie and cheat and still not have to pay the piper!

1 comment:

  1. It could have just been a vast coincidence. Thousands of people influenced by the magnetic forces of Mars.


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