The Supreme Court today ruled in favor of securities fraud defendants in Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 06-43 (U.S. Jan. 15, 2008). See the opinion here or here and the SCOTUSBlog report here.
Justice Kennedy wrote the 5-3 majority opinion, in which Chief Justice Roberts and Justices Scalia, Thomas, and Alito joined. Justices Ginsburg and Souter signed onto the dissent by Justice Stevens. Justice Breyer, having recused himself, didn’t participate. See Counting Votes in Stoneridge.
The decision appears to turn on the reliance element — the very ground that the Solicitor General urged the Court to adopt. See Solicitor General Splits Baby in Stoneridge, May Affect Enron Case.
The defendants wanted a more sweeping opinion, one that would’ve absolved mere "participants" in a "deceptive act" or scheme from any liability under Rule 10b-5 so long as they didn’t utter a misrepresentation or half-truth. The majority said on this point:
The Court of Appeals concluded petitioner had not alleged that respondents engaged in a deceptive act within the reach of the section 10(b) private right of action, noting that only misstatements, omisisons by one who has a duty to disclose, and manipulative trading practices . . . are deceptive within the meaning of the rule. . . . If this conclusion were read to suggest there must be a specific oral or written statement before there could be liability under section 10(b) or Rule 10b-5, it would be erroneous.
Stoneridge, slip op. at 7.
At its conference on January 18, 2008, the Court will again take up a petition to review the Stoneridgey decision in Regents of the Univ. of Calif. v. Credit Suisse First Boston (USA), Inc., 482 F.3d 372 (5th Cir. 2007), which turned on the "deceptive act" element instead of reliance. See Blawgletter post here. Consideration of Regents, No. 06-1341, at a conference on June 21, 2007, produced no action.
We predict a different result this time: vacation of Regents and a remand for proceedings in light of Stoneridge.