Some years ago, we devoted a good deal of attention in this space to the Supreme Court's decision in Stoneridge v. Scientific Atlanta, which we argued was correctly decided.
The plaintiff's bar hates Stoneridge and has been seeking desperately to overturn it. Carter Wood blogs that that effort has failed, again, at least for now:
From Reuters, "(Reuters) - Senators on Wednesday beat back a House measure giving shareholders the power to sue third parties such as banks and accountants not directly involved in securities fraud."
Sen. Chris Dodd (D-CT) insteades won support for a GAO study of securities fraud and the effects of the Stoneridge v. Scientific Atlanta ruling. See also Dow-Jones, earlier POL post.
I discussed the importance of this issue in a Case law school program on scheme liability under the federal securities law, which was motivated by the Stoneridge case. which was then pending before the US Supreme Court. I start talking at about the 30:15 mark of the webcast.
I further discuss why keeping Stoneridge intact is so important below the fold.
The effect of reversing Stoneridge would be to dramatically increase the class of potential defendants in securities cases by imposing potential liability on those who "aid and abet" violations. The consequences would be severe and adverse to the competitiveness of US capital markets (for more the effect of litigation on that market, see here). As the Supreme Court explained in the Stoneridge case:
The practical consequences of an expansion [of the Rule 10b-5 cause of action], which the Court has considered appropriate to examine in circumstances like these, provide a further reason to reject petitioner?s approach. In Blue Chip, the Court noted that extensive discovery and the potential for uncertainty and disruption in a lawsuit allow plaintiffs with weak claims to extort settlements from innocent companies. Adoption of petitioner?s approach would exposea new class of defendants to these risks. As noted in Central Bank, contracting parties might find it necessary to protect against these threats, raising the costs of doing business. Overseas firms with no other exposure to our securities laws could be deterred from doing business here. This, in turn, may raise the cost of being a publicly traded company under our law and shift securities offerings away from domestic capital markets
