Legal News

Stoneridge is in! Supremes Rein in Investor Suits

By Ashby Jones

This just in: The much-ballyhooed Stoneridge case has come down. Here’s the opinion. The Supreme Court has voted 5-3 that investors can’t bring private lawsuits against third parties in corporate-fraud cases unless they relied on actions by those parties when making investment decisions. (Justice Breyer did not participate in the case.) Here’s the early story from Dow Jones Newswires. For earlier Law Blog posts on Stoneridge, click here, here and here. Here, also, is an exchange on the issues from last year between two securities-law heavyweights.

The case centered on the issue of “scheme liability,” i.e., whether third parties — investment bankers, lawyers, accountants and vendors — can be held liable under the federal securities laws for fraud committed by companies with which they do business.

The court ruled against investors who accused two suppliers — Scientific-Atlanta and Motorola — of colluding with Charter Communications to deceive Charter’s stockholders and manipulate the price of the cable-television company’s stock. To a large degree, the majority opinion turned on whether the investors had, in making their decisions, relied on Scientific-Atlanta or Motorola’s statements. The court said no: “We conclude the private right of action does not reach the customer/supplier companies because the investors did not rely upon their statements or representations.”

On the winning team: Steve Shapiro of Mayer Brown, who argued the case on behalf of Motorola and Scientific-Atlanta. “The Supreme Court today handed down a major victory for the U.S. economy and investor welfare,” said Shapiro in a statement. “The Court understood that the trial lawyers’ theory of ‘scheme liability’ was simply a scheme to rake in billions of dollars for themselves at the expense of the investors they purported to represent.”

Full post as published by Law Blog - WSJ.com on January 15, 2008 (boomark / email).