Reading Stoneridge Carefully: A Duty-based Approach to Reliance and Third Party Liability Under Rule 10b-5

Abstract:     
The Supreme Court's decision in the Stoneridge case has largely been interpreted as a imposing a strict, pro-defendant reliance requirement. This article offers an alternative reading that takes the Court's analysis more seriously than its overheated dicta, one that makes remoteness a serious and meaningful inquiry that can produce balanced and fair responses to the concern that seemed to motivate the search for restraint: fear of disproportionate liability. It explores the nature of the dispropotion, and suggests ways -- using the Court's own explanatory tools -- for deciding when third party involvement is close enough to the fraud so that fear of disproportion lessens. Among other things, this approach leads clearly to a rejection of the so-called attribution approach for liability. Recognizing that a statutory solution may be better than judicial patchwork, it also offers a coupling of expanded liability with a more rational and sensible proportionate liability regime than now exists.

Number of Pages in PDF File: 48

Keywords: securities fraud; secondary liability; reliance

JEL Classification: K00, K22

working papers series