Government Opposes "Scheme Liability" in Pending U.S. Supreme Court Case
The U.S. Solicitor General has submitted an amicus curiae brief in a pending U.S. Supreme Court case, requesting that the Court narrow the scope of securities fraud claims so as not to encompass third party actors such as accountants, lawyers, and financial institutions.
The case pending before the U.S. Supreme Court is StoneRidge Investment Partners, LLC v. Scientific-Atlantic, Inc. The Court below, the Eighth Circuit Court of Appeals, refused to impose Rule 10b-5 liability on a business that entered into an arms-length non-securities transaction with another business that then used the transaction to publish false and misleading statements to its investors. The Court reasoned that a defendant who does not make a fraudulent misstatement or omission or who does not directly engage in manipulative securities trading practices is at most guilty of aiding and abetting and cannot be held liable under Rule 10b-5.
Other amicus have sided with the plaintiff in favor of “scheme liability” that would hold third parties liable for securities fraud. A significant roadblock is the 1994 U.S. Supreme Court decision in Central Bank finding that mere aiders and abettors could not be liable for securities fraud. The Solicitor General’s amicus brief argues that allowing securities fraud liability under these circumstances would “expose customers, vendors, and other actors far removed from the market to billions of dollars in liability,” and this is “particularly inappropriate” because “such a radical expansion of liability is a task for Congress, not the courts.”
Oral argument on this case will be heard October 9, 2007.
