Three former commissioners of the Securities and Exchange Commission, William Donaldson, Harvey Goldschmid and Arthur Levitt filed an amicus brief with the U.S. Supreme Court in the matter of Stoneridge Investment Partners LLC v. Scientific-Atlanta Inc., et al., case number 06-43, advocating a theory of “scheme liability” for companies that engage in transactions that facilitate securities fraud by another issuer, in this case a cable television company, Charter Communications, Inc. that paid additional fees to cable box vendors in exchange for agreements by such vendors to buy advertising from the company, allegedly permitting it to overstate revenues and defraud shareholders. The brief argued that “a party commits a primary securities fraud violation for which it may be held liable in a private action by actively engaging in fraudulent conduct as part of a scheme to defraud investors, even if it does not make a public statement."
The brief was not filed timely, but the filers asked the Supreme Court to accept it in light of the Solicitor General’s failure to file such a brief despite having been requested by the SEC to do so, which plaintiff’s counsel Stanley M. Grossman of Pomerantz Haudek Block Grossman & Gross LLP described as “unprecedented”. The Charter case was granted a writ of certiorari in March 2007 and will be heard by the Supreme Court during its 2007-2008 term. (Securities Law 360, 7/18/07)