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Abstract

In Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc. the United States Supreme Court interpreted Securities and Exchange Commission Rule 10b-5 and the Private Securities Litigation Reform Act of 1995 to determine whether a person liable for aiding and abetting the securities fraud of another party can be held liable as a primary violator of Rule 10b-5 for purposes of private civil actions on the theory that he participated in a scheme to defraud. In deciding that an aider and abettor is not so liable, the Court reaffirmed its prior holding in Central Bank of Denver v. First Interstate Bank of Denver that there is no private cause of action against aiders and abettors. This article reviews the history of aider and abettor liability and examines in detail the arguments of the parties in Stoneridge, with the author ultimately concluding that the case was wrongly decided. By requiring parties injured by aiders and abettors engaged in a scheme to defraud to pursue them as secondary violators, the Court bars the injured parties from the courthouse and requires them to seek SEC action, which may lead to a less than adequate remedy. The Court based its decision on a lack of required reliance by a plaintiff on deceptive actions by the aider and abettor, but it improperly found that two rebuttable presumptions of reliance (public statements under the fraud-on-the-market doctrine and omissions of material fact by one with a duty to disclose) were not satisfied by aiders and abettors engaged in schemes to defraud.

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