January 15, 2008 / 3:40 PM / 11 years ago

UPDATE 1-US court upholds limits on securities fraud suits

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WASHINGTON, Jan 15 (Reuters) - The U.S. Supreme Court ruled on Tuesday that investors cannot sue third parties such as banks and accountants in cases of securities fraud.

The ruling, by a 5-3 vote in one of the most closely watched business cases in years, is widely seen affecting a similar third-party lawsuit by Enron Corp investors against investment banks over the energy trader’s collapse in 2001.

The high court’s ruling involved a lawsuit by Stoneridge Investment Partners, on behalf of Charter Communications (CHTR.O) shareholders, against Scientific Atlanta, a unit of Cisco Systems (CSCO.O), and Motorola Inc MOT.N.

Stoneridge claimed the companies schemed to inflate Charter’s revenues in 2000.

The Supreme Court upheld a lower court’s dismissal of the lawsuit. Justice Anthony Kennedy concluded for the court majority that the federal securities law does not reach the companies because Charter investors did not rely on their statements or representations.

The ruling was a defeat for investor advocates, who have said that all parties should be liable if they knowingly worked on a transaction that defrauded investors.

Opponents have said that allowing third-party lawsuits would open the door to a rash of frivolous lawsuits and introduce new liability risks into every aspect of doing business.

Justice John Paul Stevens, joined by Justices David Souter and Ruth Bader Ginsburg, dissented.

“Today’s decision simply cuts back further on Congress’ intended remedy” in enacting the securities laws, Stevens wrote. (Reporting by James Vicini and Rachelle Younglai; Editing by Brian Moss)

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