Sal,
First, I am not a lawyer, but I really doubt whether you have standing to
sue a company over pre-announcements.
What has the company done wrong? Not met the expectations of wall
street? But hey, they didn't make those predictions, nor did the company
bid up the stock in the market. So why should the company be at fault?
We'll assume no fraudulent statements or intent here. Anyway, that should
be dealt with by criminal penalties, not civil, IMO, for reasons which will
be clear.
Second, if you could do this, the effect would probably just be to end
pre-announcements. The net result would be less timely information, which
can't benefit the small investor. I would rather make good decisions less
capably than big players than make bad decisions somewhat better than they.
Now, like Paul, I wouldn't mind seeing something done such that all such
announcements have to be made in a manner that small investors have access
to them on an equal footing with large ones but, in truth, with
after-market trading and such I can't seeing any such rule providing much
real benefit.
But I think that any such changes, if desirable, are better accomplished
through means other than piecemeal civil lawsuits. Thus, herein follows my
harangue on shareholder lawsuits.
Before you go off advocating suing people, I think you should ask who it is
you are suing. A company has a bad quarter and they pre-announce bad
earnings. Stock goes down, shareholders lose. So you want to sue the
company. Who owns the company? Shareholders. Who are you really suing?
Shareholders. We're all suing each other now. Yippee!
Regardless of the fault-finding or blame-assigning aspects of lawsuits,
civil suits against companies that miss estimates just don't make any
financial sense, IMO. Presumably, a successful lawsuit will result in a
cash award being levied against the company. Certainly it will result in
huge legal costs and a distractions of management away from solving the
underlying business problems, and toward defending against a lawsuit.
Who does this benefit?
It doesn't benefit long-term shareholders in the company. In fact it
results in a permament net equity loss to them, from settlements or legal
costs, plus lost management productivity.
It might possibly benefit former shareholders, but the amount they could
receive is relatively small relative to their investment, as most stocks
trade above liquidation value. I hope you're not advocating liquidating
all estimate-missing companies in order to pay off former speculators--er,
investors.
Of course if a large settlement is spread over relatively few litigants,
they could benefit substantially. In this case, these litigants are
basically looting the company treasury at the expense of other
shareholders.
It doesn't benefit the public as a whole, because of the economic drag of
legal costs and lost productivity. It also discourages long-term
investment, because there is a disincentive to continue to hold shares in a
company facing a string of potential lawsuits, and an incentive to just
dump shares, sue first, and ask questions later.
It certainly benefits the lawyers. Gee, I wonder who is championing
Prop. 211?
I suppose there is some sort of predatory psychological need being
satisfied, a misery-loves-company desire to make someone "pay" for economic
loss, regardless of redress or consequences. This seems pretty immature to
me, but given the financial logic of these suits, I can't make out any
other reason for a typical investor to be interested in them.
As a final word, I've personally been caught off guard by earnings
pre-announcements, and I wasn't happy. But, again, the solution isn't to
start sueing companies. If pre-announcements are really a bad thing for
small investors -- and I'm not convinced they are -- the solution is some
sort of administrative rule change or legislative action, not civil
lawsuits that serve to enrich lawyers at the expense of long-term
investors.
If you are a trader I think you just have to accept these things as an
occupational hazard. Did you feel sorry for the shorts when Intel
pre-announced a good quarter?
Sorry to all for the long off-thread harangue.
--joel |
