The March 17, 2008 edition of the National Law Journal has a pair of columns on the impact of the Supreme Court’s recent securities litigation decisions.
(1) In Stoneridge Alters Legal Landscape (subscrip. req’d), the authors recap the decision and argue that the Court’s rejection of “scheme liability” has “profoundly changed” the potential securities fraud exposure of third parties.
Quote of note: “The holding in Stoneridge indicates that all or most of that $7 billion [in Enron-related settlements] probably did not have to be paid, because the banks, even if they acted with full knowledge that they were engaged in a scheme with Enron, had no liability to the investing public under the anti-fraud provisions of the federal securities laws. Note that while the settling banks in Enron paid approximately $7 billion, there remained a number of banks that declined to settle, and that would have faced massive exposure had Stoneridge been decided differently.”
(2) In Courts Interpret Tellabs (subscrip. req’d), the authors examine the post-decision case law and conclude that courts are taking a “more stringent” approach to scienter pleading.
Quote of note: “Of 102 reported decisions reviewed applying Tellabs, 64 reflect dismissals (albeit some with leave to amend). On its face, this (unscientific) survey reflects a dismissal rate higher than historical norms.”