Supreme Court Limits Securities Fraud Suits

By Admin on January 16, 2008 | Last updated on March 21, 2019

A U.S. Supreme Court ruling has limited the ability of stockholders to sue third-party businesses -- including banks, accounting firms, and customers -- that may have played a role in facilitating a company's securities fraud. In a 5-3 decision, the Court held that under federal securities laws, "the investors cannot be said to have relied upon any of the deceptive acts" of these secondary actors in the decision to purchase or sell securities; "and as the requisite reliance cannot be shown," those secondary actors -- here two customers and suppliers of a company in which the investors held common stock -- have no liability to the stockholders. The Washington Post reports that the case "has been seen largely as a stand-in for investors who want to go after banks and others that allegedly allowed the energy trader Enron Corp. to disguise its financial problems prior to a collapse that produced heavy losses for investors."

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