As predicted, the U.S. Supreme Court dropped the other shoe this week when it spurned putative class action investor attempts to get the Court to review their case against “secondary” players (financial institutions such as Merrill Lynch and Credit Suisse), who were alleged to have participated in the activities leading to the Enron collapse in 2001.

We noted the trend in the high Court favoring business over investor protection in the previous posting here, following the Court’s decision last week in Stoneridge Investment Partners v. Scientific-Atlanta Inc. In that case, the Court disallowed investor claims against suppliers of the company in which they invested.

It’s now going to be more difficult than ever before for investors in court and securities arbitration to plead and prove so-called “loss causation” for their investment losses based on anything other than their direct reliance on the actual activities of the aiders and abettors of fraud such as accountants, financial institutions and their analysts, and other business advisors and associates.

Raising these thresholds for investors has eroded confidence in the ability of the system to protect them from fraudulent conduct. But based on the Court’s consistently narrow view of the ability of investors to seek redress under the securities laws, short of the involvement of Congress in amending the securities laws to bolster investor protection in this area we don’t see a solution for this dilemma anytime soon.