## Facts

- Charter Communications, Inc. allegedly sought to inflate reported revenue and operating cash flow.
- Charter entered transactions with two equipment vendors, Scientific-Atlanta, Inc. and Motorola, Inc., involving set-top boxes and advertising.
- Charter allegedly paid the vendors $20 more per set-top box, with the understanding that the vendors would “return” the overpayments by buying advertising from Charter.
- Plaintiffs alleged the arrangement had no net economic effect and should not have produced reportable revenue under GAAP.
- Charter allegedly recorded the vendors’ advertising payments as revenue while capitalizing the increased box costs, inflating operating cash flow and misleading investors.
- The vendors allegedly participated in the transactions but did not issue public statements about Charter’s finances and did not prepare or disseminate Charter’s financial statements.
- An investor, Stoneridge Investment Partners, LLC, sued Charter, its officers, and the vendors under Exchange Act § 10(b) and SEC Rule 10b-5.

## Issues

1. Whether private plaintiffs may sue secondary actors under § 10(b) and Rule 10b-5 for participating in transactions that enabled an issuer’s misstatements when the secondary actors made no public statements and their conduct was not disclosed to the market.
2. Whether investor reliance can be satisfied for such secondary actors through omission-based or fraud-on-the-market theories when the alleged deceptive conduct was not attributable to the secondary actors in public communications.

## Decision

- The Supreme Court affirmed dismissal of the § 10(b) and Rule 10b-5 claims against the vendors.
- The Court held the implied private right of action under § 10(b) does not extend to aiding-and-abetting liability.
- The Court held investors did not rely on any statement, omission, or market-attributed conduct by the vendors, and the vendors’ acts were too remote from the investors’ decisions to satisfy reliance.
- The Court declined to expand private “scheme liability” in a manner that would effectively restore private aiding-and-abetting claims.
- Vote: 5–3; Justice Kennedy authored the majority opinion; Justice Breyer did not participate.

## Legal Principles

- Private § 10(b) liability requires that the defendant’s own conduct satisfy all elements of the claim, including reliance.
- Reliance supplies the causal link between the defendant’s misrepresentation (or actionable omission) and the plaintiff’s injury; participation in transactions that merely enable an issuer’s fraud is insufficient without reliance on the defendant.
- Omission-based reliance (Affiliated Ute) depends on a duty to disclose owed by the defendant; absent such a duty, the presumption does not apply.
- Fraud-on-the-market reliance (Basic) depends on public material misrepresentations reflected in market price; undisclosed conduct by a secondary actor does not support the presumption.
- Rule 10b-5(a) and (c) “scheme” theories in private actions cannot dispense with reliance or be used to circumvent the bar on private aiding-and-abetting liability.

## Conclusion

The Court held that vendors who participated in transactions that facilitated an issuer’s misleading financial reporting were not subject to a private § 10(b) damages action where investors did not rely on the vendors’ own public statements, actionable omissions, or publicly attributed deceptive conduct, limiting private “scheme liability” against secondary actors.


Stoneridge Inv. Partners, LLC v. Sci.-Atlanta, Inc., 552 U.S. 148 (2008)