SCOTUS: Stoneridge v. Scientific-Atlanta
Technology Daily did not publish Tuesday due to an office move but the story below is reprinted from CongressDaily. Look for more coverage of Stoneridge v. Scientific-Atlanta in Wednesday's PM Edition.
Securities Fraud Case Arguments Made To Supreme Court
By Andrew Noyes
Supreme Court justices today heard arguments in what many believe to be the most critical securities fraud case in a decade as they were asked whether defrauded investors can recover money from third parties. In Stoneridge Investment v. Scientific Atlanta, shareholders of cable television provider Charter Communications want to sue business partners Motorola and Scientific Atlanta.
The firms, which manufacture set-top boxes, allegedly engaged in sham transactions that inflated Charter's revenue by $17 million. The 8th U.S. Circuit Court of Appeals and a lower federal court dismissed the claim but stated that Motorola and Scientific Atlanta, which was acquired by Cisco Systems in 2005, aided and abetted the fraud.
During oral arguments, Justice Ruth Bader Ginsburg asked Scientific-Atlanta attorney Stephen Shapiro whether there could be a "middle ground" between one's status as a principal in such a case and a party that aids and abets. Justice David Souter also asked whether there could be "an overlap" between the two camps.
Justice Antonin Scalia questioned Stanley Grossman, who represented the investors, whether any aider and abettor that engages in a deceptive act should be considered a principal in the fraud and therefore be held liable.
Grossman said the conduct in question must have "the purpose or intent of furthering a deceptive act," which his clients believe occurred. Justice Samuel Alito said he saw "no difference" between Grossman's test and standing "elements of aiding and abetting."
Shapiro accused the other side of trying to erode the court's 1994 precedent-setting ruling when the majority decided there could be no liability for aiding and abetting in securities fraud. There are "special reasons for caution," in this case, he added.
"Congress intended to remove this category of case from private litigation to deal with an important problem that was harming our economy," Shapiro said. "Congress wanted cases like this one to be handled by an expert and disinterested administrative agency."
Deputy Solicitor General Thomas Hungar, who supported Scientific-Atlanta, argued against expanded liability, noting that Congress has twice rejected that proposal in recent years. The SEC, however, favors the plaintiff's position.
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