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Financial Reform Leaves Vile Law Intact

The court pointed out that the closest the plaintiff came to showing "scienter"--knowledge of wrongdoing--was when a former employee allegedly "heard that Impac's president overrode an underwriter's recommendation to reject a bulk loan purchase in April or May 2006 and caused the loan pool to be purchased." The problem, the court found, is that "there is no allegation that this override necessarily occurred during the class period and in any event [the plaintiff] provides no specific information about how the underwriting guidelines were violated. Even crediting this allegation in full, it is 'not so indicative of fraudulent intent that it carries the weight of the entire . . . complaint.'" So the court ruled, citing yet another sage decision in another investor-castration case.

So out went the case. Despite those five ex-employees, the plaintiffs weren't able to conduct any discovery, thanks to Congress's gift to the shareholders of America.

I'm not pleading the cause of class action lawyers here, folks. Melvyn Weiss (no relation, thank God), the king of class action lawyers, was sent to prison a couple of years ago for illegal client kickbacks, and even before that scandal the class-action bar was rife with issues, chief among them was that they get paid too much and investors get paid too little. But in an era in which the SEC proves every day that it's simply not up to the task of enforcing the securities laws, securities fraud suits are one of the few ways private citizens can get some measure of justice.

The PSLRA needs to go, and a real reform measure needs to take its place. It's not happening, but that doesn't make it any less necessary.

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Gary Weiss has covered Wall Street wrongdoing for nearly two decades. His coverage of stock fraud at BusinessWeek won many awards, and included a cover story, "The Mob on Wall Street," that exposed mob infiltration of brokerages. He uncovered the Salomon Brothers bond trading scandal, and wrote extensively on the dangers posed by hedge funds, Internet fraud and out-of-control leverage. He was a contributing editor at Conde Nast Porfolio, writing about the people most intimately involved in the financial crisis, from Timothy Geithner to Bernard Madoff. His book Born to Steal (Warner Books: 2003), described the Mafia's takeover of brokerage houses in the 1990s. Wall Street Versus America (Portfolio: 2006) was a hard-hitting account of investor rip-offs. He blogs at
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