Stoneridge v Scientific Atlanta Decided

The Supreme Court, very predictably to anyone who read the arguments, decided 5-3 in favor of the defendants in Stoneridge.  Justice Kennedy, the author of the earlier Central Bank of Denver opinion, wrote the majority opinion affirming the logical extension of the earlier opinion.  Pity.  The big winners are lawyers and investment bankers.  The largest of our financial frauds are now so complex that they must involve lawyers who write and file the paper and investment bankers who fund and underwrite the deals.  These professionals, if they participate with intent but do not attach their names to any of the fraudulent statements known to the public markets are free from liability in private suits.  The SEC can still sue them and seek substantial civil penalties but the SEC has traditionally focused on the CEOs and CFOs who are the primary violators.  There is an unimportant sense in which lawyers are losers however.  It is less likely that they will have a BarChris style opinion to hand out to young associates and clients as a defense to the pressures from clients to go along with clients' questionable activities.  The pressure to generate billable hours plus the strategy of documented plausible denial ("I only filed X based on assurances and did not know of the fraud") and the full plate of the SEC enforcement office may mean that lawyers will continue to be too willing to not ask questions when a lucrative fee is available. The claim that such an action would generate more "strike suits" has some merit but it is limited given the need to pled specifically and prove scienter, which would be signficantly harder in aiding and abetting cases than it is now in primary violator cases.