Engler Says Decision Will Prevent “Creeping Liability”
WASHINGTON, D.C., January 15, 2008 – National Association of Manufacturers President John Engler today welcomed the U.S. Supreme Court’s 5-3 decision upholding a decision by the U.S. Court of Appeals for the Eighth Circuit in Stoneridge Investment Partners v. Scientific Atlanta that upheld the parameters of liability in securities fraud litigation.
“The High Court’s opinion reflected the arguments we made in our amicus brief filed with the court last August,” Engler said. “A contrary decision would have overturned decades of established law and greatly expanded potential liability of our member companies.”
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 fiduciary duty or engage in insider trading.
Engler said Congress had made clear its intent to keep Section 10(b) confined to market actors and market-directed activities, not to expand it to manufacturers or others who simply do business with a market actor. “Had the petitioner prevailed in this case, it would have opened the floodgates for litigation and have a chilling effect throughout our economy.
“The critical issue in this case was primary liability,” Engler 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 in the law. The Securities and Exchange Commission has authority to punish companies that aid and abet illegal activities. The petitioners in this case were seeking an opening to go far beyond the law in search of deep pockets, and we really don’t need any more of that in our country. This decision will prevent creeping liability in this area of securities law.”
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