Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, January 16, 2008

Second-Day Thoughts on Stoneridge

Here is a sampling of the media coverage on Stoneridge: WPost, Corporate Fraud Lawsuits Restricted; NYTimes, Supreme Court Limits Lawsuits by Shareholders; WSJ, Top Court Limits Shareholder Fraud Suits.  Some analysts, who are more optimistic than I, find a silver lining in the majority's distinction between "ordinary" commercial transactions and capital-raising activities, a distinction that would still allow for imposition of liability on the investment banks in Enron (a case pending before the Court since last spring).  However, the strong message of the majority opinion is the need for reliance, which leaves no loophole for undisclosed, behind-the-scenes fraud (which, of course, is how fraudulent schemes are conducted).

After Stoneridge, the SEC's role in deterring fraud by third parties and obtaining compensation for investors from them under disgorgement and the Fair Funds provision of Sarbanes-Oxley becomes the only game in town.  Is it up to the task?  I have expressed my doubts elsewhere about the policy and the SEC's track record in bringing Fair Funds cases (in a forthcoming article in The Business Lawyer).  Meanwhile, what about filling those two vacancies on the Commission?  I think those two guys and one gal could use some help, what with the financial markets in such bad shape that "recession" and even "depression" are becoming buzz words.

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The bright side of Stoneridge is that it isn't, like so much other SCOTUS jurisprudence, written in stone. Congress, through ordinary legislation, can easily create a private cause of action in cases like this one.

Posted by: ohwilleke | Jan 16, 2008 11:21:38 AM

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