Earlier today, the United States Supreme Court decided by a 5-3 vote to limit securities fraud lawsuits. For a detailed analysis of the case and links to the opinion, I recommend visiting www.scotusblog.com.
Basically, a set of vendors agreed to some “wash” transactions with its customer. Although the vendors accounted for the transactions properly, the customer used the sham transactions to commit securities fraud. Years later, the shareholders of the customer wanted to sue the vendors for aiding and abetting the customer in committing the fraud. The Supreme Court decided not to create a private cause of action.
In terms of the facts of this case, the bad behavior by the defendants was truly atrocious. Hopefully, the government will take appropriate action against the companies and their employees.
Nevertheless, I am OK with the result. Had the plaintiffs prevailed, the shareholders of the vendors would end up compensating the shareholders of the customer for the fraud committed by the customer. Furthermore, innocent vendors could spend millions defending themselves from weak/frivolous lawsuits.