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(Feb 02, 2008) On January 15, the United States Supreme Court ruled that private persons may not maintain lawsuits under section 10(b) of the Securities Exchange Act of 1934 (1934 Act) against persons who participated in arrangements facilitating securities fraud but did not prepare or distribute financial statements.

Stoneridge Investment Partners, LLC sued respondent Scientific-Atlanta, Inc. and other persons under section 10(b) of the 1934 Act after losing money following its purchase of stock in a corporation, Charter Communications, Inc. Stoneridge alleged that Scientific-Atlanta participated in sham transactions that allowed Charter to mislead its auditor and issue a misleading financial statement. Scientific-Atlanta did not help prepare or disseminate the financial statement, however.

The Supreme Court held that a private right of action under section 10(b) cannot be maintained here against Scientific-Atlanta because Stoneridge did not rely upon statements or omissions by Scientific-Atlanta in making investment decisions. The Court noted that in 1995 amendments to the 1934 Act, Congress directed the Securities and Exchange Commission (SEC) to prosecute persons who aid or abet securities fraud, but did not provide a right of action against them by private parties like Stoneridge. The Court stated that Stoneridge's theory of liability would extend securities law liability into ordinary business operations usually governed by state law, and would be contrary to Congress's decision to limit aiding and abetting claims to the SEC. It ruled that plaintiffs like Stoneridge must demonstrate they relied on statements or omissions in making investment decisions if they are to maintain a cause of action under section 10(b). (Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., No. 06-43 (Jan. 15, 2008) available at http://www.supremecourtus.gov/opinions/07pdf/06-43.pdf.)

Author: Luis Acosta More by this author
Topic: Commerce More on this topic
Jurisdiction: United States More about this jurisdiction

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Last updated: 02/02/2008