Can't hold leaders accountable

By Dave Anderson:

Bend over, as the Supreme Court says our Galtian overlords are beyond approach and reproach.

First, the Big Picture is detailing the get out of jail free car the financial industry is receiving for intentionally lying in mutual fund prospectuses:

In a party-line, 5 to 4 split, the Supreme Court last week severely curtailed investors� practical ability to hold financial intermediaries accountable for fraud. The case, Janus Capital Group, Inc. v. First Derivative Traders, seems arcane. But for perpetrators of fraudulent securitizations, it is a jubilee. The Supreme Court has eliminated the danger of their being investigated and sued by the people whom they fleeced...


The question before the Supreme Court was not whether the statements were in fact misleading, but who should be construed as having made the statements. The answer, the Court determined, is perhaps nobody at all. Misleading statements were made, but literally no one can be held accountable.



When an ordinary firm issues securities, the firm itself is the �person� who makes the statements that appear in prospectuses and other disclosures. But with dedicated investment vehicles, things are more complicated. Investment vehicles � mutual funds and ETFs, but also securitizations like RMBS and CDOs � segregate the management and operation of the fund from the legal entity whose securities investors hold. If you �own� a Janus mutual fund, the securities you hold are likely claims against an entity called Janus Investment Fund. But Janus Investment Fund exists mostly on paper. Another company, Janus Capital Management, actually does everything. The human beings who make day-to-day investment decisions, as well as the offices they work in and the equipment they work on, are provided by Janus Capital Management. Communications and legal formalities, including prospectuses, are drafted by employees of Janus Capital Management.



The Supreme Court held is that, even though employees of Janus Capital Management company actually wrote any misleading statements, even though they managed nearly every substantive aspect of the operation of the fund, they cannot be held responsible because they did not �make� the statements.

Secondly, Balloon Juice notes how large corporations can systemically discriminate without any recourse:

I don�t see how anyone can get a class certified in a discrimination case against a large company, if this kind of logic is applied to those cases. All the company needs to do is to delegate policy-making authority far enough down into its organization, and there�s no way that a lawsuit can proceed. It doesn�t matter if this delegation of authority generally results in discrimination. As long as those at the top state that it isn�t their policy to discriminate, they don�t have any responsibility for widespread discrimination, since it results from actions of managers making independent decisions. This sounds like basic �hear no evil, see no evil� reasoning in practice.

No one at the top can be punished. It might hurt their fee-fees to be held resopnsible as discriminating liars. And we can not have that at all or they might go Galt and stop their looting.