By Cydney Posner

Supreme Court today refused to extend liability for securities fraud to secondary actors, such as investment banks and lawyers, in private securities fraud actions. The case is Stoneridge Investment v. Scientific-Atlanta, in which Motorola and Scientific-Atlanta were involved in sham transactions with Charter Communications, designed to inflate Charter's revenue. The Supreme Court's 1994 decision in Central Bank of Denver precluded liability for aiding and abetting by third parties in private securities litigation. In Stoneridge, however, plaintiffs contended that, under a theory of "scheme liability," Central Bank should not apply because the third parties in this case (vendors for the issuer) were active participants in the fraudulent transactions. The result of this case was anticipated in light of indications in the course of oral argument that Justices Roberts and Alito were disinclined to extend a private right of action to third parties in this case. Ultimately, according the AP piece published in the WSJ, the majority opinion written by Justice Anthony Kennedy held that Charter investors do not have a private right of action because they did not rely upon the deceptive acts of Charter's suppliers.

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