Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc. - Oral Argument - October 09, 2007

Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc.

Media for Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc.

Audio Transcription for Opinion Announcement - January 15, 2008 in Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc.

Audio Transcription for Oral Argument - October 09, 2007 in Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc.

John G. Roberts, Jr.:

We'll hear argument next in Case 06-43, Stoneridge Investment Partners v. Scientific-Atlanta, et al..

Mr. Grossman.

Stanley M. Grossman:

Thank you, Mr. Chief Justice, and may it please the Court: The text of section 10(b) as well as the rule 10b-5 promulgated by the Securities and Exchange Commission prohibit the use of any deceptive device by any person, indirectly or indirectly, in connection with the purchase or sale of a security.

The various deceptive devices used by the Respondents in this case is conduct that is squarely covered by the text of the statute and by the rule.

Respondents here were not passive bystanders facilitating a fraud by Charter.

Their deceptive conduct was integral to the scheme to create fictitious advertising revenues for Charter to report to investors.

Respondents agreed to overcharge Charter so that they could receive the money from Charter to then return to it for the advertising, using Charter's very--

same money for the purchase of the advertising.

Respondent Scientific-Atlanta created a document falsely claiming that the reason for the increased payments from Charter were because of increased manufacturing expenses.

Anthony M. Kennedy:

The transaction was not wholly without benefit to Scientific-Atlanta.

They got some advertising.

And it was not wholly without benefit to Charter.

They were able to show that advertising works.

Now, that puts aside the fact that they were using misleading accounting principles.

Stanley M. Grossman:

Well, I would agree, Your Honor, that they received free advertising.

But the problem was that they were creating the illusion that it wasn't free advertising, but rather that they were purchasing the advertising.

Ruth Bader Ginsburg:

And was the price four to five times higher than the normal rates for advertising?

Stanley M. Grossman:

That is correct, Justice Ginsburg.

And the obvious purpose for creating the illusion that they were purchasing the advertising rather than receiving free advertising was so that Charter can incorporate these increased revenues in their financial statements.

And Respondents understood,--

they understood that in order to... for Charter to pass this by their accountants, to deceive the accountants... and this is reflected in the indictment... in order to deceive the accountants for Charter, the Respondents were told that there had to be separate agreements for both the advertising agreements and the purchase agreements.

Antonin Scalia:

Mr. Grossman, is there any reason why, in principle, the elements for a cause of action under 10b-5 have to be the same as the elements for a cause of action by the agency under 10(b)?

I mean, we, we created this, this cause of action.

It's not set forth in the statute, although other private causes of action are.

If it's our creation, couldn't we sensibly limit it so that, for example, schemes can be attacked by the SEC, but schemes do not form the basis for private attorney general's actions?

You need actual conveyance of a misrepresentation to the injured party.

Is there any reason why we couldn't do that?

Stanley M. Grossman:

Well, I think there are two reasons, Your Honor.

The first is that at this point in time... I think as the Court recognized in Dura fairly recently... that when Congress enacted the Private Security Law Reform Act, that at that time they accepted--

the private right of action that this Court had previously inferred.