Lifting the Lid-U.S. investor lawyers regroup after court loss

By Martha Graybow

NEW YORK, Jan 16 (Reuters) - Shareholders who sue companies for fraud have been dealt a blow by the U.S. Supreme Court, but that doesn't mean their lawyers plan to slow down the pursuit of new cases against corporate America -- including those spurred by the mortgage market meltdown.

Business groups have cheered the high court's ruling in a closely watched case that limits shareholders' ability to sue third parties such as advisers, bankers and auditors that had dealings with companies engaged in accounting fraud.

Investor lawyers, though, say the ruling handed down on Tuesday is bad news for shareholders and will limit their possible recoveries when they are duped by companies in financial frauds. "This is the latest in a string of decisions that are clearly more favorable to the business interests and the business community in their desire to avoid accountability for their conduct," said Steven Toll, head of the securities practice at plaintiffs' law firm Cohen, Milstein, Hausfeld & Toll in Washington, D.C.

"The approach taken is totally antithetical to the interests of investors," he said.

Toll and other lawyers who specialize in investor class-actions, however, say they do not expect the ruling to curtail new filings in stock fraud lawsuits overall.

They say the decision covers only a subset of class-action litigation, and should not have a big impact on one of the hottest legal areas in business litigation: cases brought against lenders and banks over subprime lending.

"Good cases will still be brought, and investors will still recover, but we know the deck is pretty much stacked against us pretty much to the top," said Christopher Keller, a partner at law firm Labaton Sucharow LLP, which specializes in bringing securities fraud cases against big companies.

In the decision, the Supreme Court voted 5-3 to side with big business and curb investors' ability to sue outside parties in a case involving shareholders of cable provider Charter Communications CHTR.O against vendors that worked with the company.

It's not clear how far-reaching the ruling will be, but one of the biggest corporate fraud cases now pending -- a lawsuit brought by Enron investors against a group of investment banks -- could be over following the ruling.

Enron investors sued banks they accused of helping the energy trader conceal financial fraud. Some banks, including Citigroup (C.N) and JPMorgan Chase & Co (JPM.N), settled early on, but remaining defendants including Merrill Lynch & Co Inc MER.N and Credit Suisse Group (CSGN.VX) won a big victory when an appeals court ruled the case could not proceed as a class-action.

Following this week's ruling, the Supreme Court could now let the lower court ruling stand, effectively spelling the death of the investors' lawsuit. It's also possible, however, that the court could ask the appeals court to revisit the issue, keeping the case alive.

Whatever happens with the Enron case, it's not considered a bellwether, Keller said. Most securities fraud cases target a single company and its executives, not third parties, he said.

"A lot of people are overplaying the importance of the issue" of third-party liability, he said. "When it arises it is very important. For example in Enron, the recovery came from the underwriters, not from the company itself. But it's really important only when you have a primary violator that is not able to satisfy a judgment."

For their part, business groups have applauded the Supreme Court ruling, and say it should help rein in investor lawsuits that go after deep-pocketed defendants but have no merit.