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Supreme Court keeps investor suits narrow

In a 5-to-3 ruling, justices say firms that merely abetted fraud can't be sued.

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Vendors, accountants, lawyers, and others who conduct business with a corporation that engages in securities fraud cannot be sued for damages by outraged investors when they merely aided or abetted in the fraud.

Instead, in a 5-to-3 decision announced on Tuesday, the US Supreme Court ruled that investors must focus their legal efforts on the offending corporation itself and its officers.

The much-anticipated decision is considered one of the most important securities-law rulings in a generation.

In adopting a narrow reading of the securities laws governing class-action lawsuits, the high court has made it harder for investors to hold a wide spectrum of business players legally responsible for unlawful business practices at publicly traded companies.

The decision comes in a case called Stoneridge Investment Partners v. Scientific-Atlanta and Motorola. It marks a significant setback for investors, including those seeking to recover losses in the massive Enron scandal. It's also a setback for corporate watchdogs who were hoping the justices would adopt a broad enough reading of the securities laws to put all business associates on notice that they could be held accountable for involvement in business fraud.

The decision marks a victory for various business groups that had argued that broad liability in securities-fraud cases could unleash a flood of class-action litigation that would hurt the US economy and American competitiveness.


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