The decision of the US Supreme Court in the Stoneridge case is doubtless a victory for business, but I doubt whether it will be enough to save the banks and the rating agencies when it comes to the inevitable sub prime related litigation. The court refused to allow investors to sue “entities who, acting both as customers and suppliers, agreed to arrangements that allowed the investors’ company to mislead its auditor and issue a misleading financial statement affecting the stock price.”
I am not a lawyer, but I think the penultimate paragraph of the opinion seems clear enough: “Unconventional as the arrangement was, it took place in the marketplace for goods and services, not in the investment sphere. ... In these circumstances the investors cannot be said to have relied upon any of respondents’ deceptive acts in the decision to purchase or sell securities; and as the requisite reliance cannot be shown, respondents have no liability to petitioner under the implied right of action. ”
While agreeing that that the anti fraud provisions of securities law are not “limited to preserving the integrity of the securities markets,” the court asserts that these provisions do “not reach all commercial transactions that are fraudulent and affect the price of a security in some attenuated way.”
I do not see how any of this will help the originators and underwriters of sub prime securities or the agencies that rated them if their actions turn out to be fraudulent. It will take a lot of investigative effort to determine whether there was fraudulent behaviour (and even more effort to establish the fraud if any in a court of law), but private players have every incentive to expend this effort.