As the piece explains, the case has practitioners on both sides of the securities-litigation bar rather nervous.  If third parties can be held liable in private securities litigation, the article notes, the case will have major implications for law firms, investment banks, consultants, and accounting firms participating in the disclosure and compliance process.  On the other hand, plaintiffs worry that Stoneridge will curb the reach of the securities laws; as Jay Brown notes in the article, “there is fear among shareholder and investor groups that as a matter of policy, the Supreme Court will rewrite . . . Rule 10b-5 to continue to make it difficult to use.”  (Jay has posted about Stoneridge on our Blog here.)

Given its potentially far-reaching ramifications, the case has generated significant interest, with more than a dozen parties filing friend-of-the-Court briefs.  The United States has argued that, although third parties such as investment bankers can be held liable for securities fraud in some cases, to prevail plaintiffs must show that they relied on misstatements by the third party; since third-party communications with issuers are rarely made public, showing such reliance will often be difficult.  The Government’s position contradicts the views of a majority of the present members of the Securities and Exchange Commission and those of many lawmakers.

The academy has also weighed in–on both sides of the case.  Stephen Bainbridge, Robert Clark, John Coates, Allen Ferrell, and Larry Ribstein, along with several former SEC Commissioners, have filed a brief urging the Court that third-party liability in this case is inappropriate.  Several observers have argued that permitting third party liability in a case such as this would impose substantial costs on any entity doing business with issuers in the future.  On the other hand, the article explains, Jill Fisch of Fordham Law School has filed a brief urging that third-party liability will be limited by the requirement that a defendant actually engage in deceptive conduct.

As Jay Brown explained here, legal analysts are having difficulty anticipating the views of Justice Samuel Alito and Chief Justice John Roberts on the case.  Until recently it appeared that both the Chief Justice and Justice Breyer would be recused from the case; but a recent order indicates that the Chief Justice will participate.  In light of the other Justices’ votes in a previous case, Central Bank v. First Interstate Bank, it appears that the Chief Justice and Justice Alito will be decisive to the outcome in Stoneridge.  The arguments on October 9 might thus provide some insight as to what we can expect the Court to tell us about third-party liability this Term.