Business Law News
Author | Evan Berger; Gregory Seidell; Susrut Carpenter |
Pages | 13 |
Stoneridge Investment Partners brought a securities fraud class action lawsuit against Scientific-Atlanta and Motorola in United States District Court under Section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5. Stoneridge alleged losses were incurred after purchasing Charter Communications, Inc. common stock due to sham arrangements made between Charter, Motorola, and Scientific-Atlanta to increase Char- ter's cash-flow.
In a 5-3 decision, the Supreme Court held that "[r]eliance by the plaintiff upon the defendant's deceptive acts is an essential element of the Section 10(b) private cause of action." Here the respondents "had no duty to disclose; and their deceptive acts were not communicated to the public." Because no public investors had any knowledge of this "scheme," they had no reliance upon it in making their investment decisions. Though Motorola and Scientific-Atlanta may have known about the "scheme," the court felt that the securities laws at issue did not offer a private right of action against 3rd party actors. This decision will likely to limit 3rd party liability in securities cases to prosecution by the government.
The U.S. Supreme Court in a unanimous decision held that the deductibility of fees paid by a trust was limited to fees in excess of the two-percent floor, since 26 U.S.C.A. Section 67(e)(1) allowed full deductibility only if the costs would not have been incurred if the property were not held in trust. The court determined that to allow a full deduction for costs incurred by trusts the proper test for whether those costs escaped two percent floor was whether they would not "commonly" or "customarily" be incurred by individuals. This decision overturned the case...
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