Stoneridge v. Scientific America: The SEC Speaks, Sort Of

One of the more interesting briefs filed on Monday in Charter (Stoneridge v. Scientific America) was the one written by the Regents of the University of California, with Lerach Coughlin the authors. The brief is posted on the DU Corporate Governance web site. 

Much has been written about whether the Supreme Court will grant cert in Credit Suisse, the case arising out of the Enron.  The Regents (who are plaintiffs in that case) are making sure that the Justices get a dose of that case no matter what they decide with respect to the cert petition.  The brief addresses the fraud in that case and the analysis used by the 5th Circuit in resolving the issue. 

Moreover, while the Solicitor General declined to file a brief representing the views of the SEC in Stoneridge, the Regents made sure the Supreme Court would be made aware of the SEC's views.  The brief makes bountiful use of the Commission's amicus brief (a copy of which is at the DU Corporate Governance web site) in Simpson. The views of the agency have not, therefore, gone unmentioned.

The case tackles head on the reasoning in Credit Suisse, particularly its reliance on Chiarella and O'Hagan, two insider trading cases.  The Fifth Circuit relied on these cases in taking the position that only those making misrepresentations can be liable under Section 10(b).  As the brief notes:

• "The Enron majority’s opinion misreads this Court’s precedents. Chiarella’s discussion of duty assumes a claim based on a failure to speak: 'This case concerns the legal effect of the petitioner’s silence.' 445 U.S. at 226. In an insider trading case like Chiarella, the claim of fraud is grounded in an insider’s failure to make required disclosures in connection with a specific securities transaction. Chiarella and O’Hagan did not at all address whether deliberately deceptive conduct can qualify as a deceptive device under §10(b)."

The point is accurate and one that we have noted. 

It makes good strategic sense to bring up the facts in Credit Suisse.  Even without granting certiorari in the case, the Supreme Court could be influenced by the reasoning.  Moreover, the case for reversal is even stronger than in Charter, thereby presenting the Court with another set of facts that illustrate the implications of a narrow interpretation of the concept of primary liability.