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Keywords

defendantliabilityclass action
appealrespondent

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Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 552 U.S. 148, 128 S.Ct. 761, 169 L.Ed.2d 627, 76 USLW 4039, Fed. Sec. L. Rep. P 94,556, 08 Cal. Daily Op. Serv. 559, 2008 Daily Journal D.A.R. 569, 21 Fla. L. Weekly Fed. S 46

Facts

Investors filed a class action against Charter Communications, its executives, and its vendors, Scientific-Atlanta and Motorola, alleging securities fraud. The investors claimed that Charter engaged in fraudulent practices to inflate its financial statements, including manipulating billing practices and entering into sham transactions with the vendors. These transactions allowed Charter to mislead its auditor and present misleading financial statements to the public, ultimately affecting the stock price. However, the vendors had no role in preparing or disseminating these financial statements.

Charter, a cable operator, engaged in a variety of fraudulent practices so its quarterly reports would meet Wall Street expectations for cable subscriber growth and operating cashflow.

Issue

Whether the vendors could be held liable under § 10(b) of the Securities Exchange Act for their involvement in transactions that allegedly inflated Charter's reported revenues, despite the investors not relying on the vendors' statements.

Whether the § 10(b) private right of action does not reach respondents because Charter investors did not rely upon respondents' statements or representations.

Rule

The private right of action under § 10(b) does not extend to aiders and abettors, and reliance on a material misrepresentation or omission by the defendant is a necessary element for liability.

The § 10(b) private right of action does not extend to aiders and abettors.

Analysis

The Court determined that the vendors' actions did not constitute a deceptive act within the reach of the § 10(b) private right of action because the investors did not rely on any statements or representations made by the vendors. The vendors' conduct was deemed too remote to establish the necessary causal connection for liability under § 10(b). The Court emphasized that the deceptive acts must be directly connected to the investors' injury, which was not the case here.

In considering petitioner's arguments, we note § 10(b) provides that the deceptive act must be 'in connection with the purchase or sale of any security.'

Conclusion

The Supreme Court affirmed the lower court's decision, concluding that the vendors could not be held liable under § 10(b) because the investors did not rely on their actions or statements.

We affirm the judgment of the Court of Appeals.

Who won?

Scientific-Atlanta and Motorola prevailed in the case because the Supreme Court found that the investors did not rely on the vendors' statements, which is a necessary element for liability under § 10(b).

The court observed that, at most, respondents had aided and abetted Charter's misstatement, and noted that the private cause of action this Court has found implied in § 10(b) and Rule 10b–5 does not extend to aiding and abetting a § 10(b) violation.

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