Stoneridge Investment Partners v. Scientific-Atlanta
Issues
Can a party be held liable for fraud where it made no misleading public statements (or omissions), and had no duty to disclose, but engaged in transactions with a public corporation designed to artificially inflate the public corporation's financial statements?
Stoneridge Investment Partners, LLC, brought a securities fraud class action against Charter Communications' vendors Scientific Atlanta and Motorola, alleging a scheme in which Charter contracted with the vendors to purchase set-top cable boxes at higher-than-normal prices and sell advertising at higher-than-normal rates. These transactions served to artificially inflate Charter's stock price. The United States District Court for the Eastern District of Missouri held that Stoneridge's claim was foreclosed by the Supreme Court's decision in Central Bank, N.A. v. First Interstate Bank, N.A., 511 U.S. 164 (1994), in which the Court determined that mere "aiders and abettors" of fraud cannot be held liable. The Eighth Circuit affirmed. Thus, the issue before the Supreme Court is whether a party may be held liable for fraud where it made no misleading public statements (or omissions), and had no duty to do make disclosures, but engaged in transactions with a public corporation designed to artificially enhance the public corporation's financial statements. How the Supreme Court decides this case may set a new standard for determining whether third-parties can be held liable for investor-related fraud.
Questions as Framed for the Court by the Parties
Does the Supreme Court's decision in Central Bank, N.A. v. First Interstate Bank, N.A., 511 U.S. 164 (1994), foreclose claims for deceptive conduct under section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, where Respondents engaged in transactions with a public corporation with no legitimate business or economic purpose except to inflate artificially the public corporation's financial statements, but where Respondents themselves made no public statements concerning those transactions?
Charter Communications is a publicly traded cable company that provides digital services to millions of personal and business customers throughout the country. Brief for Petitioner at 4. In order to provide these services, Charter contracts with vendors, such as Respondents Scientific-Atlanta and Motorola, who provide set-top boxes and other equip