In Closely Watched Stoneridge Case, U.S. Supreme Court Rejects "Scheme Liability" Theory and Declines to Extend Securities Fraud Liability to Secondary Actors in Context of Private Litigation

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On January 15, 2008, the United States Supreme Court issued its much anticipated ruling in the high profile case of Stoneridge Investment Partners, LLC v. Scientific- Atlanta, Inc., No. 06-43, 552 U.S. ___, in which it considered the reach of the implied private right of action under §10(b) of the Securities Exchange Act of 1934. The Court addressed the specific issue of whether the private right of action could be used to impose liability on ?secondary actors,? such as suppliers and customers, whose alleged nonpublic deceptive acts ? in this case, sham business transactions between the secondary actors and the issuer of securities ? allowed the issuer to mislead its auditor and issue false financial statements affecting its stock price. In a 5-3 vote, the Court ruled that the suppliers/customers could not be held liable in a private action under a so-called ?scheme liability? theory, because investors in the issuer?s securities did not rely upon the representations or conduct of the secondary actors.

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