Appeals Court Rules That Investors Have No One To Blame But Themselves

from the as-it-should-be dept

In an appeal to an earlier ruling, an Appeals Court has ruled that investors who got suckered into the whole dot com bubble can’t blame the various Wall Street analysts for fraud, even if they knew the stocks they were touting were duds. This is a good decision. When you choose to invest your money, you should be doing your own research. Relying completely on what some analyst tells you, without understanding their own conflicts of interest (which were all widely publicized at the time) or taking the time to do your own research on the company, doesn’t grant you any special “out” by which you can blame them for your failure to do any research yourself.

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Comments on “Appeals Court Rules That Investors Have No One To Blame But Themselves”

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Marc Smith (user link) says:

Investor responsibility vs. Wall Street Analysts

To totally absolve those who gave biased information is wrong. Why? Because many people depend upon them for advice. Few investors are professionals. There is a degree of dependency there. I never lost a cent, but I’m not a believer in the stock market – It’s nothing more than gambling in my eyes. But I know how the system works and how the stock market is sold. My mother was sold on the stock market – And then when the bubble burst lost about 40% of her entire portfolio. She watched those programs on TV and listened to those ‘professional Wall Street Analysts. She, well – My father, was an investor going back to the early 1950’s when insider trading was very common – I know – That’s how my long dead father did very well in the market.

Steve Mueller (user link) says:


This is a good decision. When you choose to invest your money, you should be doing your own research. Relying completely on what some analyst tells you, without understanding their own conflicts of interest (which were all widely publicized at the time) or taking the time to do your own research on the company, doesn’t grant you any special “out” by which you can blame them for your failure to do any research yourself.

I’m sorry, but the decision is not good. If you were defrauded, you should get some recompense. Of course, if the buyers just went to the brokers and asked to buy the stock, that’s different. I’m not sure stock brokers have an obligation to warn customers that the stock likely stinks; financial advisors, however, would have that obligation.

The case at hand may be slightly different if the investors didn’t specifically ask Henry Blodget for advice. However, claiming they didn’t do research may also then be suspect, because part of their research may have included checking what a prominent analyst like Blodget thought.

Your position here also seems completely inconsistent with your position on the NorVergence scam. The businesses invested their money in NorVergence products, just like stock investors invest in corporations. Both stocks and telecommunications products are complex and most people aren’t experts in them. If the company selling the products or stocks misrepresented them, that’s fraud and the buyers should be able to collect damages. Or do you now think the business owners that NorVergence scammed should not be able to sue for damages?

Mike (profile) says:

Re: Inconsistent

Not inconsistent at all. There’s a huge difference between buying a box that has specific features and services that are part of the offering — but which don’t actually function — and buying a stock, which is, by its very nature, a risky endeavor, whose only “function” is to go up or down.

If you’re selling a product, and you claim it does something, and it doesn’t that’s fraud.

If you’re selling a stock and predicting it will go up or down, that’s a recommendation — which everyone knows you cannot actually predict with any accuracy.

Can you not see the difference?

eskayp says:

Re: Re: Inconsistent

If a medical, legal, or engineering professional knowingly sold customers bad service or advice, said professional would soon be in front of criminal and/or regulatory authority facing fines and/or loss of credentials.
The civil suits would follow in short order.
These wall street fraudsters knowingly sold bad professional advice — and they get a walk.
BTW: please forward your remarks about
“… buying a stock, which is, by its very nature, a risky endeavor, …”
to president Bush while he is trying to ramrod people who depend on Social Security into the stock market.
Just another huckster knowingly pushing bad advice.

eskayp says:

Re: Re: Re:2 Inconsistent

Good to hear some accountability came into play.
The central concern is that many laypeople trust ‘experts’ or ‘professionals’ when dealing with technical matters.
When that trust is deliberately betrayed for personal gain we tend to become angry and vindictive.
Just like the victims of violent (non whitecollar) crime.
Analogy: A credentialled security professional comes into your home to provide ‘burglar proofing’ but ends up robbing you instead.
Should the victim in ANY way be held responsible for that betrayal of trust?
Hey, the perp was from a reputable, bonded, licensed company.
The perp had photo ID and a background check.
And the perp’s manner was totally professional — until the gun was jammed in your face.
Yet some would argue that the victim somehow bears partial responsibility by not adequately vetting the perp.
Perhaps the victim was lax by not hiring a PI to investigate the security firm.
Or maybe the victim should have hired another ‘security professional’ to monitor the first ‘security professional’.
But who’s to say the second ‘expert’ is honest?
Reasonable people assume a modicum of integrity when dealing with entities that are licensed and bonded; e.g. medical, legal, & financial.
Most citizens do NOT have the expertise to objectively evaluate the reliability of such professions.
That is the mission of licensing and bonding.
Yes, we live in a ‘buyer beware’ world.
As Enron, tech market failures, and investment firm debacles have shown, beware especially of the stock market.
Merrill-Lynch and Blodget were hand-in-glove.
The courts wrung out the glove but held the hand harmless.
BTW: The referenced article did not chastise the victims for failure to perform due diligence.
Motion was denied because adequate proof of fraud had not been presented.

Mike (profile) says:

Re: Re: Re:3 Inconsistent

Again, the point is very different. Your analogy isn’t analogous at all.

Any of the situations you describe are very very different. You’re hiring people to perform a certain task — and if they fail to perform it, then you can accuse them of fraud.

However, an analyst is recommending stocks where there’s clearly no guarantee of the stocks moving up or down. You go to an analyst for advice, and then you make your own decisions and your own purchases.

eskayp says:

Re: Re: Re:4 Inconsistent

I understand the ‘…analyst is recommending stocks…’.
Also ‘…and then you make your own decisions…’.
And ‘…You’re hiring people to perform a certain task…’.
The stock analyst is hired to provide an objective evaluation of the value for certain issues.
When analysts deliberately mislead customers in order to fatten their own accounts, reasonable people consider that fraudulent behavior.
The analysts saw these stocks as ‘dogs’ yet they touted them to the investors, leading to avoidable losses.
Hence the outrage expressed about the court’s denial of liability for all the parties involved.
Investors recognize that bad judgment, mistakes, and unexpected market behavior can, and do, lead to losses.
They also recognize when they have been conned.
And they recognize when they have been denied justice.
Not to worry though — ‘It’s all perfectly legal!’
The fraud happened — it just wasn’t proven.
Does a falling tree make a sound if no one hears it?
Is swindling investors a fraud if no judge will hear it?
Ah well, I guess we get what we voted for.
Anyway, good discussion on a good site — thanx.

Mike (profile) says:

Re: Re: Re:5 Inconsistent

No, no. Sorry, I guesss this is a more fine-lined discussion.

I’m not saying that the analysts don’t deserve to be disciplined or punished. In fact, most of them have been. Blodget, in particular, won’t ever work on Wall Street again.

However, the investors themselves were still responsible for the decisions. Otherwise, any time there’s ever a loss in the stock market, people will blame the analysts. No one will take responsibility for their own investment decisions.

eskayp says:

Re: Re: Re:6 Inconsistent

I’ll stick with the ‘reasonable person’ standard.
(This case highlights how the ‘legal-jurisprudence’ standard fails.)
A reasonable person, acting as judge, jury, or investor realizes the high degree of risk associated with the stock market.
A reasonable person, reviewing the facts, and the advice that had been provided by the analyst,
could determine that Blodget, and the firm he shilled for, should both be held accountable.
Merrill-Lynch may have aided and abetted.
Or they may have given a wink and a nod while washing their hands.
But due diligence on their part, as a fiduciary, it was not.
Ergo all victims, as a class, merit recompense.
FYI: I am not directly a market investor, only indirectly via several retirement plans; M-L dependency = unknown.
And in no way would a reasonable person conclude that a adverse decision on this issue
would deem that ALL losses in the stock market are compensable.
Losses due to deliberate misinformation are another matter: for prosecution.
It’s like the difference between playing poker with a straight deck versus a stacked deck.
Frontier townfolk used to lynch cardsharks.
Today’s Wall Street sharks get a bye, if they’re big enough.
Same for celebrities and the politically connected.
And reasonable people wonder what went wrong.

Anonymous Coward says:

Re: Re: Re: Inconsistent

Well, Inconsistant, I am not going to explain the difference between putting your all your money in a single stock vs. a “basket” of stocks or an index, which is going to be proposed by SS reform. This sort of high-falutin’ finance is just beyond your comprehension.

I’ll tell you what. You just rely on your SS check for all your retirement. Maybe put a little extra in that passbook savings account earning about 1%.

For me, I’ll assume I won’t get a dime from the current ponzi scheme called SS and max out my 401K, putting it all in the stock market (broad stocks, not one stock).

Let’s see who retires better in 30 years.

Anonymous Coward says:

Re: Re: Re:2 Inconsistent

The biggest tax hike in our histories was under Reagan (and Greenspan) which was to “save” Social Security at least until 2070. All the current forecasts from the government and independent analysts say that in fact it will be running fine without any changes until 2040, and at that point minor tuning can keep it going for another 30 years without issue. Are you trying to say that Reagan/Greenspan were liars and that that tax hike was needless?
There is no Ponzi scheme. It is a pay as you play system. The money is there, and guaranteed to be there. The only way to create a risk is to break the system by moving it into risky investment. The risks there are very real. The whole gov’t managed privatizated investment account scheme has been tried by many other nations – why not take a look at the results? Once you check it out you will see that it has been a universal failure wherever it was implemented and most governments that tried it are moving away since it is screwing over the people it was intended to help.
The current generation of Republicans are lying about a crisis because they want to steal even more money from us by sucking more cash out of our paychecks and enriching their investment banker pals. The system they are proposing has many obvious errors, and worse, has real world cases of failure. Take a serious look at the issues and do some more reading. The only way Social Security will not be paying you is if you let Bush and his bozo-economists get their greedy hands on it. Look how badly they have hosed every aspect of the eceonomy they have touched – do you really want these morons “fixing” even more?

dcavanaugh says:

A larger question...

How about those analysts who are paid to promote a particular point of view? These “analysts” are out there pumping up some really awful stocks (like SCOX), without revealing whose payroll is generating the opinions. As an investor, it is my responsiblity to conduct research, but there has to be some accountability for the shills.

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