Justices Doubt Investors' Arguments

It's been called the most important securities fraud case to reach the Supreme Court in years, with fortunes riding on the decision and the scandal of Enron just in the background.

But after oral arguments yesterday, it doesn't seem like much of a cliffhanger.

Chief Justice John G. Roberts Jr.'s aggressive questioning seemed to set the tone for a majority suspicious of expanding the ability of investors who lost money through corporate fraud to sue businesses that may have facilitated the crime.

The case involves a cable company and the suppliers of cable boxes, but it has largely been seen as a stand-in for investors who want to go after banks and others who allegedly allowed Enron to disguise its financial problems.

Plaintiffs' lawyers say sometimes the only way for investors to recover money lost because of a company's fraudulent actions is to go after what are known as "secondary actors," who could include vendors, accountants and lawyers. But the nation's business interests say Congress has given regulators the authority to punish lawbreakers and increasing the number of lawsuits will just put U.S. firms at a global disadvantage.

Attorneys for the investors bringing the challenge said the law and the court's previous decisions already allow such suits, although lower courts have ruled against them.

But several justices said the investors were asking for new avenues for bringing civil suits and didn't seem enthusiastic about granting them.

"I see no limitation to your proposal" for assigning liability, Justice Anthony M. Kennedy told Stanley M. Grossman, an attorney for Stoneridge Investment Partners.

And Roberts said Congress is now taking the lead on when private actions are allowed and when it wants the Securities and Exchange Commission to go after wrongdoers.

"My suggestion is that we should get out of the business of expanding it, because Congress has taken over and is legislating in the area in the way they weren't back when" the court implied private investors had the right to sue, Roberts said.

In the current case, Stoneridge v. Scientific-Atlanta, Scientific-Atlanta and Motorola are accused of scheming with Charter Communications to boost Charter's earnings report to Wall Street.

Investors from Stoneridge say that at Charter's instigation, the two vendors boosted the price of their cable boxes, Charter paid the extra money, and the companies then used it to buy advertising with Charter at higher-than-normal rates. The deal was a wash for the vendors but made Charter's books look better to the tune of $17 million.