Franklin A. Gevurtz[*]
Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc. is one of the most contentious securities law decisions handed down by the United States Supreme Court in recent years. At issue in the case was the scope of liability created by § 10(b) of the Securities Exchange Act of 1934 and by Rule 10b-5, promulgated pursuant to that section. Specifically, the Court considered whether parties beyond the corporation issuing a false financial report could be held liable to private plaintiffs for their fraudulent acts in violation of these provisions. The defendants in the Stoneridge case were (in a somewhat unusual set of facts) third-party vendors of the corporation issuing the false statement, but everyone understood that the Supreme Court’s decision would impact accountants, lawyers, investment bankers, and the like, who have been involved in transactions resulting in fraudulent financial reporting. As a result of the decision’s anticipated impact, the Supreme Court was inundated with amicus briefs. Given the current leaning of the Supreme Court, victory for the defendants in Stoneridge was probably predictable. Nevertheless, the decision is worth academic discussion because it illustrates how utterly irrational the law governing private securities fraud actions has become.