NEW YORK, Jan. 15, 2008 (PRIME NEWSWIRE) -- Today's Supreme Court decision in StoneRidge Investment Partners LLC v. Scientific-Atlanta, Inc., et al. (No. 06-43) reaffirms the existence of the private cause of action under Section 10(b) of the Securities Exchange Act of 1934, which continues to cover secondary actors who commit primary violations such as lawyers, accountants and bankers. While holding that under the circumstances presented by the case the investors could not be said to have relied on defendants' deceptive conduct, the Court drew a distinction between the transactions occurring in the "realm of ordinary business operations" and those in "the realm of financing business." The Court also recognized that the reasoning of the court below, to the extent it attempted to limit Section 10(b) to oral or written statements, was erroneous. Instead, the Supreme Court accepted petitioner's argument that "conduct can be deceptive."
StoneRidge involved claims that Scientific-Atlanta and Motorola, suppliers of set-top boxes to Charter Communications, falsified documents and entered into sham transactions to allow Charter to report inflated results to its investors. But in rejecting plaintiffs' claims under the securities laws, the Court stated that "unconventional as the arrangement was, it took place in the marketplace for goods and services, not in the investment sphere." Accordingly, the Court held that under the circumstances defendants' conduct was too remote from plaintiffs' investment decisions to impose liability under the securities laws.
Stanley M. Grossman, who argued the case on behalf of the petitioner, stated: "The decision confirms the ability of private litigants to bring claims under Section 10(b) against secondary actors where the elements of the claim are established, rejecting respondents' invitation to adopt a safe harbor categorically protecting the fraudulent acts of secondary actors. Lawyers, accountants and investment bankers who engage in transactions which inevitably will be reflected in the financial statements of a corporation should draw little comfort from this decision."
Mr. Grossman further stated, "We find it ironic that members of the Court who call themselves strict constructionists ignored the broad language used by Congress and barred petitioner's claim based on limitations that Congress never enacted. We believe that Congress meant what it said when it prohibited any person from employing any deceptive device or contrivance in connection with the purchase or sale of securities. The Court should not be in the business of rewriting statutes, even if it disagrees with Congress."