Scheme Supreme

I recently published Scheme Supreme, an analysis of Stoneridge Investment Partners LLC v. Scientific Atlanta, Inc., in which the Supreme Court will decide whether third parties may be held liable for violations of federal securities laws. The article points out that much commentary on Stoneridge has oversimplified the case, suggesting that third-party liability was foreclosed in Central Bank v. First Interstate Bank when in fact Central Bank explicitly left the issue open.

Having served as special counsel to the U.S. Senate Committee on Government Affairs in the Enron investigation, in my view Stoneridge will be crucial in determining whether the true culprits in major corporate scandals can be held liable under the securities laws. The opening paragraph of Scheme Supreme explains:

The Supreme Court recently heard oral argument in the case of Stoneridge Investment Partners LLC v. Scientific Atlantic, Inc. The case will be the latest of numerous Supreme Court cases that have given substance to the nature and extent of liability under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder. The facts in Stoneridge, as well as those of other companion cases awaiting action by the Court (e.g., Enron), have been the subject of numerous Wall Street Journal editorials over the past two years. The most recent, A Class Action Scheme, referred to Stoneridge as “the business case of the year.” That’s cliche and, like much of the discussion of the theoretical underpinnings of the case of the last two years, understates the importance of the case. Stoneridge will be the most important securities case in a generation–a veritable Brown v. Board of Education of securities law–further refining the question of who can be sued and who cannot under Rule 10b-5.

The full article is available for download here.