The Supreme Court handed down its opinion Jan. 15 in the closely watched securities case Stoneridge Investment Partners v. Scientific-Atlanta. In a huge win for corporations, the Court ruled 5-3 that third parties, such as investment bankers, lawyers, accountants or vendors, cannot be held liable for the fraudulent acts of their clients.

“Stoneridge continues the Court's recent trend of raising the bar for plaintiffs in securities class actions and in fact, this decision goes much further than any previous ruling in limiting the potential scope of liability of outside professionals in a shareholder lawsuit,” said Lisa Wood, co-chair of Foley Hoag's securities litigation group, in a statement.

At issue in the case was whether Charter Communications Inc. investors could seek damages from cable box suppliers Scientific-Atlanta Inc. and Motorola Inc. Investors alleged the suppliers had enabled Charter to artificially inflate its profits using sham transactions made in 2000.

But the Court found that the third-party suppliers had no duty to disclose, the public had no knowledge of their deceptive acts and the investors did not rely upon their statements or representations. “Petitioner, as a result, cannot show reliance upon any of the respondents' actions except in an indirect chain that we find too remote for liability,” Justice Anthony Kennedy wrote for the majority.

“Aiding and abetting liability is authorized in actions brought by the SEC but not by private parties,” he added.

The decision could have huge consequences for a suit Enron investors brought against banks that did work for the company when it was involved in fraudulent acts. That suit is pending before the Supreme Court.

Justice Steven Breyer recused himself from hearing Stoneridge, reportedly because he holds stock in Cisco Systems Inc., the company formerly known as Charter Communications. Joining Kennedy in the majority were Chief Justice John Roberts Jr., Antonin Scalia, Clarence Thomas and Samuel Alito.

Justices David Souter and Ruth Bader Ginsberg joined John Paul Stevens in his dissent. Stevens wrote that the majority's decision “cuts back further” on Congress' intention for the antifraud provision of the Securities and Exchange Act of 1934, under which investors filed Stoneridge.

The Supreme Court handed down its opinion Jan. 15 in the closely watched securities case Stoneridge Investment Partners v. Scientific-Atlanta. In a huge win for corporations, the Court ruled 5-3 that third parties, such as investment bankers, lawyers, accountants or vendors, cannot be held liable for the fraudulent acts of their clients.

“Stoneridge continues the Court's recent trend of raising the bar for plaintiffs in securities class actions and in fact, this decision goes much further than any previous ruling in limiting the potential scope of liability of outside professionals in a shareholder lawsuit,” said Lisa Wood, co-chair of Foley Hoag's securities litigation group, in a statement.

At issue in the case was whether Charter Communications Inc. investors could seek damages from cable box suppliers Scientific-Atlanta Inc. and Motorola Inc. Investors alleged the suppliers had enabled Charter to artificially inflate its profits using sham transactions made in 2000.

But the Court found that the third-party suppliers had no duty to disclose, the public had no knowledge of their deceptive acts and the investors did not rely upon their statements or representations. “Petitioner, as a result, cannot show reliance upon any of the respondents' actions except in an indirect chain that we find too remote for liability,” Justice Anthony Kennedy wrote for the majority.

“Aiding and abetting liability is authorized in actions brought by the SEC but not by private parties,” he added.

The decision could have huge consequences for a suit Enron investors brought against banks that did work for the company when it was involved in fraudulent acts. That suit is pending before the Supreme Court.

Justice Steven Breyer recused himself from hearing Stoneridge, reportedly because he holds stock in Cisco Systems Inc., the company formerly known as Charter Communications. Joining Kennedy in the majority were Chief Justice John Roberts Jr., Antonin Scalia, Clarence Thomas and Samuel Alito.

Justices David Souter and Ruth Bader Ginsberg joined John Paul Stevens in his dissent. Stevens wrote that the majority's decision “cuts back further” on Congress' intention for the antifraud provision of the Securities and Exchange Act of 1934, under which investors filed Stoneridge.