WASHINGTON, D.C., August 15, 2007 – The National Association of Manufacturers today filed an amicus brief asking the U.S. Supreme Court to uphold a decision by the U.S. Court of Appeals for the Eighth Circuit in Stoneridge Investment Partners v. Scientific-Atlanta that reaffirmed the long-standing parameters of liability in securities fraud litigation.
Section 10 (b) of the Securities Exchange Act of 1934 outlaws the use of deceptive or misleading information made “in connection with the purchase or sale of any security,” but as construed by the Court, limits liability to persons who make disclosures to investors, owe investors a specific fiduciary duty or engage in insider trading.
“The petitioner in Stoneridge is trying to persuade the High Court to overturn decades of established law and greatly expand potential liability,” said Quentin Riegel, Vice President for Litigation and Deputy Legal Counsel for the National Association of Manufacturers. “The law makes clear, and the Supreme Court has affirmed, that one cannot be held liable under Section 10(b) for engaging in deceptive conduct without having breached a duty to investors.
“The key issue in this case is primary liability,” Riegel said. “Without question, a company must give accurate information about its own stock. But the actions of third parties are not covered by this provision of the law. Plaintiffs’ attorneys are not empowered to sally forth beyond the law in an indiscriminate search for deep pockets.”
Professor Jay Brown at the University of Denver Law School maintains a great resource page with background and briefs here. His Race to the Bottom blog — on the other side of the issue than the NAM — comments on our brief here.
UPDATE (5:40 p.m.): The odd political dynamic in the Stoneridge case was the SEC’s decision to back the investor plaintiffs, which — when seen via a partisan lens — seems like an anti-Republican position for a Republican-majority commission to be taking. As noted, the solicitor general, representing the Administration, argued against the SEC today. The Scotusblog has a good, thorough post summarizing the debate and its associated politics.
And, many former SEC commissioners think the current commission got it wrong, filing an amicus brief taking the side side as the National Association of Manufacturers. UCLA Law Professor Stephen Bainbridge, who joined that brief, has a blog post summarizing its arguments here. As Bainbridge notes, “Amici curiae include a bipartisan group of former Chairmen, Commissioners and officials of the United States Securities and Exchange Commission (SEC), as well as prominent law and finance professors whose fields of academic inquiry include securities regulation, class-action practice, and law and economics.”
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