Supreme Court Decides Stoneridge Case
In a 5-3 decision yesterday (opinion available here), the U.S. Supreme Court ruled against investors and in favor of certain customers and suppliers of publicly-held Charter Communications in Stoneridge Investment Partners v. Scientific-Atlanta Inc. and Motorola Inc. The investors “sought to impose liability on entities who, acting both as customers and suppliers, agreed to arrangements that allowed the investors’ company to mislead its auditor and issue a misleading financial statement affecting the stock price.” The Court, however, concluded that “the implied right of action does not reach the customer/supplier companies because the investors did not rely upon their statements or representations.”
As summarized here by the WSJ, the case centered on the theory 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’s ruling appears to rein that theory in by requiring actual reliance on a third party’s allegedly deceptive conduct.
A quick video analysis of the Court’s decision by the WSJ’s Ashby Jones is available below.
