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Supreme Court rules in securities fraud case

[JURIST] The US Supreme Court [official website; JURIST news archive] ruled Tuesday that fraud claims by investors are not permitted against third parties that did not directly mislead those investors. In Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc. [Duke Law case backgrounder], the court held 5-3 [opinion, PDF] that investors in cable company Charter Communications Inc. [corporate website] did not have the right to sue over fraudulent transactions between Charter and suppliers Scientific-Atlanta Inc. and Motorola Inc. [corporate websites] that artificially inflated Charter's stock value because they did not rely on those fraudulent acts in buying or selling stocks. The court held that since investors were unaware of fraud taking place behind the scenes that they could not sue for reliance. Justice Kennedy wrote the majority opinion; Justice Stevens wrote a dissent, joined by Justices Souter and Ginsburg.

The ruling may affect a similar class-action lawsuit by former Enron [corporate website; JURIST news archive] shareholders, who are suing Wall Street banks for allegedly plotting with the company to hide its financial problems. AP has more. SCOTUSblog has additional coverage.

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