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May 08, 2006 at 08:00 PM
WASHINGTON (HedgeWorld.com)–The North American Securities Administrators Association Inc. has filed a friend-of-the-court brief with the Supreme Court of Nevada, in a move that if successful would clear the way for state lawsuits against registered clearing houses over the effects of naked short sales.
The lawsuit, Nanopierce Technologies v. Depository Trust Co., involves the contention of the plaintiff, a Denver microelectronics firm, that the defendant DTC has failed in its obligation to disclose certain defects in its stock borrowing program, defects that Nanopierce says have had negative consequences for the company and its investors.
The brief says that NASAA, an organization devoted to defending the interests of the securities regulators in the United States, Mexico and Canada, has two interests in the outcome of the appeal. First, it contends that the plaintiffs’ claims (which the brief generally refers to as “investors’ claims”–thus taking the point of view not of Nanopierce, per se, but of its stockholders) deserve a hearing on the merits.
“While the Investors’ claims may be novel ?? 1/2 in a rapidly changing marketplace where financial crime is increasingly subtle and sophisticated, plaintiffs who have suffered injury must often fashion new theories to reach those who are responsible for their losses,” the brief states.
Second, NASAA holds that the preemption argument (that is, the contention of the Securities and Exchange Commission in its amicus brief filed in February, that state-law litigation should be discouraged because it could impose substantial costs upon the federal regulatory system) poses a general threat to the public interest, because the state role in protecting investors from fraud under the common law has always been and remains a vital one.
The plaintiffs don’t seek “through this lawsuit to replace or restructure the nation’s clearing agencies or any legitimate mechanisms that Congress and the SEC have established for clearing and settling securities transactions. Their claims are aimed at unlawful conduct in connection with the operation of those mechanisms, and they should not be extinguished in the name of preemption.”
