Supreme Court to Hear Landmark Securities Law Case

Oral arguments in a case before the U.S. Supreme Court that could have a massive impact on the business community begin today. The case will decide the culpability of bankers, accountants, and others for participating in a fraud. The concept being tested in the case is known as "scheme liability."

The case, Stoneridge Investment Partners v. Scientific-Atlanta Inc. could find that third parties liable for participating In a fraud. In this case telecommunication vendors allegedly were paid by cable TV company Charter Communications to boost advertising payments to Charter. The case has widespread implications for businesses, especially an ongoing case against bankers that are accused of participating in the Enron scandal. The Enron case alleges that investment banks Credit Suisse First Boston, Merrill Lynch and others helped Enron create false profits.

The U.S. Chamber of Commerce and other business groups have warned against damage to U.S. competitiveness if the court allows individuals to sue over scheme liability. Companies would be forced to pass on the cost of increased liability to customers, said Carter Phillips, a partner with Sidley Austin who wrote the chamber’s amicus brief. Specifically, banks would charge higher fees for arranging corporate transactions.

An amicus brief filed by the federal government supported the business community's side, but did argue that non-verbal deceptive communications by bankers and other could be considered a violation of securities law.