Commentary On Supreme Court Decision In Stoneridge Investment Partners v. Scientific-Atlanta Inc

LAWFUEL – Legal 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
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 # 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.”

Pomerantz Haudek Block Grossman & Gross LLP
Stanley M.
(888) 4-POMLAW

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