The U.S. Solicitor General filed a "friend of the court" brief on Wednesday urging the U.S. Supreme Court to uphold an appellate court ruling in a key case involving third-party liability for securities fraud.
The 30-page brief by U.S. Solicitor General Paul Clement said the court "correctly held" that Scientific-Atlanta Inc., now a unit of Cisco Systems (CSCO) and Motorola Inc. (MOT) could not be held liable for a customer's accounting fraud. However, in a plus for investors, the Solicitor General argued that conduct by the two firms could be found to be deceptive.
The Supreme Court will hear oral arguments in the case this fall. The case, Stoneridge Investment Partners LLC v. Scientific-Atlanta Inc., involves third- party liability for fraud by cable-television operator Charter Communications Inc. (CHTR).
"We are pleased that the Solicitor General recognized the existence of scheme liability and that deceptive conduct is actionable. Other portions of the brief are complicated and we are studying it," said Joanne Doroshow, a spokeswoman for the Center for Justice and Democracy, a New York City non-profit consumer organization.
Enron Corp. investors who have closely monitored the Stoneridge case, may have reason to cheer as well. Dan Newman, a spokesman for the law firm of Lerach Coughlin, in San Diego , which is representing Enron shareholders in a class- action securities fraud suit, said the federal government took the view that " deceptive conduct is actionable."
"That's the crux of the Enron case," said Newman. "The victims of corporate fraud should not be left holding the bag merely because the perpetrators stayed silent."
The Solicitor General's office, which represents the federal government, took a position partly at odds with the Securities and Exchange Commission, which unsuccessfully sought to have the government file a brief in support of defrauded investors in the case. SEC spokesman John Nester declined to comment Wednesday.
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