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Case Western Reserve University School of Law

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SUPREME COURT PREVIEW SYMPOSIUM - “SCHEME LIABILITY, SECTION 10(b), and STONERIDGE INVESTMENT PARTNERS v. SCIENTIFIC ATLANTA”

In Stoneridge Investment Partners v. Scientific-Atlanta the Supreme Court will be asked to decide whether secondary parties may be held liable under Section 10(b) of the Securities Exchange Act and SEC Rule 10b-5 for engaging in transactions that enabled a corporation to misrepresent its earnings to shareholders. In this case, shareholders of Charter Communications allege that Scientific-Atlanta and Motorola engaged in a series of "sham" transactions with Charter designed to inflate the company's cash flow, and thereby commit securities fraud in violation of federal law. The alleged scheme was to pay Scientific-Atlanta and Motorola an additional $20 for set top cable boxes in exchange for the vendors returning the money in the form of "advertising fees." Charter accounted for the outgoing money as "capital expenditure" and the incoming money as revenue, thus falsely inflating operating cash flow. The vendors' position was that they could not be held primarily liable because they did not make any allegedly fraudulent representations to Charter's shareholders, and because there is not liability for aiding and abetting alleged securities fraud under Section 10(b) and 10b-5. The U.S. Court of Appeals for the Eighth Circuit agreed with the defendants, holding that secondary parties, such as Scientific-Atlanta and Motorola, could only be held liable under §10(b) of the Securities Exchange Act or SEC Rule 10b-5 is if they (1) made material misstatements or omissions, and/or (2) actively engaged in the manipulative securities practices.

Supreme Court Oral Argument Transcript

Recent Commentary
- SCOTUSBlog Analysis of Oral Argument
- News Roundup on BusinessAssociations.org
- “Stoneridge: Let the Pre-Gaming Begin,” WSJ Law Blog
- “Big Money Battle Pits Business v. Trial Bar, Wall Street Journal
-  Stephen Bainbridge, “Why the SCOTUS Gets Securities Cases Wrong So Often”
- Stephen Bainbridge, Stoneridge and Section 404: Conference Remarks”
- Barbara Black, "Stoneridge: What Makes It the Most Important Securities Case in A Decade?"

Selected Documents
Merit Brief of Petitioner – Stoneridge Investment Partners

Merit Brief of Respondent – Scientific-Atlanta, Inc. and Motorola, Inc.

Opinion of the 8th Circuit Court of Appeals – 443 F.3d 987 (8th Cir. 2006)

• Selected Amicus Briefs in Support of Petitioner
o Brief of Ohio, Texas, and 30 other states
o Brief of The Regents of The University of California (William Lerach)
o Leave to file brief out of time and brief of former SEC Commissioners

• Selected Amicus Briefs in Support of Respondent
o Brief of former SEC Commissioners and Law and Finance Professors
o Brief of The Washington Legal Foundation

• More documents available at the DU Corporate Governance Website)

Additional News and Commentary
o Paul Atkins, “Just Say ‘No’ to the Trial Bar”
Richard Booth, “In Stoneridge, the Supreme Court Should focus on Who Really Gains”
o Ted Frank, Arbitrary and Unfair, Wall St. J., May 31, 2007, at A14.
o John Gibeaut, An Outside Shot at Securities Fraud, ABA J. E-Report, May 18, 2007, at 4.
o Jeff G. Hammel, et.al., Is 'Deceptive' Conduct Only Misstatements or Omissions?, N.Y. L.J., May 8, 2007, at 4.
o William S. Lerach, et.al., Bankers for Crooks: Those Working With Schemers Like Enron Should Not Escape Liability, Legal Times, May 28, 2007
o Brooke Masters, U.S. Courts to Decide on ‘Scheme Liability’, Financial Times, Feb. 4, 2007
o Daniel J. Popeo, Will the SEC empower the plaintiffs’ bar?, The Examiner Online, June 1, 2007
o Christopher S. Rugaber, High Court to Consider Liability of Secondary Actors in Securities Fraud, The Associated Press, March 27, 2007
o Kara Scannell, SEC's Allegiances Are Put to Test, Wall St. J., May 29, 2007
o Ben Stein, Enron, the Supreme Court, and Shareholders on the Brink, N.Y. Times, April 29, 2007, April 29, 2007
o Peter J. Wallison, Contagious Liability Would Sicken Our Capital Markets, American Mag. Online, June 7, 2007

Additional Web Sources (with author, if named)
o Stoneridge Investments v. Scientific-Atlanta on SCOTUSWiki
o The Race to the Bottom
- J. Robert Brown, Professor of Law, University of Denver (also updated by other students & faculty)
o The 10b-5 Daily
- Lyle Roberts, Partner, LeBoeuf, Lamb, Greene & MacRae
o Conglomerate Blog
- Gordon Smith, Professor of Law, University of Wisconsin
o Securities Law Prof Blog
- Barbara Black, Professor of Law, University of Cincinnati
o WSJ Law Blog
- Various authors
o Point of Law
- Sponsored by The Manhattan Institute and AEI Liability Project
o “Law & Business – Professor Bainbridge”
- Stephen Bainbridge, Professor of Law, UCLA
o Ideoblog
- Larry E. Ribstein, Professor of Law, University of Illinois
o SEC Actions
- Porter, Wright, Morris & Arthur Securities Litigation Group