United States Supreme Court Benefits Me

Posted on February 6, 2008


I guess every demographic gets its day before the U.S. Supreme Court, and dadgummit, on January 15, 2007, I got mine. Granted, third party securities advisors is a narrow class, and the ACLU does not get too passionate in defending my rights, but as a lawyer who advises companies on securities matters, the Stoneridge Investment Partners v. Scientifc Atlanta case was a welcome headline: “US Supreme Court refuses to extend liability to third party advisers.”

I was relieved by this limitation on 10b5 liability.  As an attorney
who helps pull together early stage ventures (where fraud is rampant)
and initial financing documents, any expansive reading of liability is
scary.  Yes, I am thorough and maintain my due diligence obligations,
but I am not an insurance policy.  These ventures are often high risk,
and if you do not understand the risk involved, you should not invest.

I try to consistently point out that the phrase “No return of capital
is guaranteed” is more than just verbiage.  Often, in a failed round,
the advisors are the only one left standing.  Thus, the temptation
exist to sue the advisors, and unless the advisors have real
culpability that is wrong.

The Supreme Court agrees. If you read the opinion, then you will
see that advisors still have responsibilities.  In particular, an array
of criminal laws still comes into play, serving as more of a deterrent
to fraud than civil liability.  Additionally, state civil laws can
ensnare misbehavior.  I do not think practitioners are looking for a
free pass, just some protection from being an easy target.

Mike Goodrich, Goodrich Law Firm, LLC