Investors lose in court ruling

WASHINGTON -- Defrauded investors cannot sue bankers, lawyers and other third parties who did not directly mislead investors but worked with corporations that did, the Supreme Court ruled Tuesday.

The 5-3 decision rejected a broad theory of liability for parties who allegedly play a role in misleading auditors and inflating a stock price.

Writing for the court majority, Justice Anthony Kennedy said the stance urged by a group of investors would create liability beyond what Congress had intended in securities law. He also cautioned that greater liability might harm U.S. companies and deter foreign firms from doing business here.

The financial community had been awaiting a ruling in the case, Stoneridge Investment Partners v. Scientific-Atlanta, which was argued before the justices in October.

Patrick Coughlin,attorney for the University of California Regents and other Enron shareholders, called the ruling "a very anti-investor decision" that will hurt the biggest fraud cases — "the Enrons and WorldComs of the world."

A federal appeals court had booted the Enron lawsuit, but shareholders' attorneys appealed to the Supreme Court. The court could decide as soon as Friday, likely returning the suit to the lower court in light of the Stoneridge ruling.

Scientific-Atlanta hailed the decision. In a statement, Susan Hurd,a partner at Alston & Birdfor the firm, said the court correctly refused to allow rampant liability "that would reach potentially the whole marketplace in which the primary defendant did business."