It’s one of the biggest securities-law showdowns in years: When is a third party directly responsible for another company’s stock fraud? In this case, the third parties are equipment suppliers who allegedly helped a cable company cook its books. But the decision could apply broadly to lawyers, investment bankers, accountants, or anyone who does business with a company that does wrong. Arguments are set for October 9.

PARTIES

StoneRidge Investment Partners
StoneRidge Investment Partners is a Pennsylvania-based firm with $770 million under management. It was an investor in cable company Charter Communications, whose stock tanked when it committed securities fraud.
Scientific Atlanta and Motorola
Cable-box makers Scientific Atlanta and Motorola were suppliers to Charter. They allegedly participated in a scheme to inflate Charter’s earnings by paying sham fees.

POSITIONS

StoneRidge Investment Partners StoneRidge says Scientific Atlanta and Motorola played a primary role in the fraud, which gives shareholders the right to sue them directly.

Scientific Atlanta and Motorola The cable-box makers say that, at worst, they “aided and abetted” Charter’s fraud, which isn’t enough to make them directly liable. Therefore, they can’t be sued by Charter’s shareholders.

AMICUS BRIEFS

StoneRidge Investment Partners
In a setback for StoneRidge, the solicitor general declined the S.E.C.’s request to file a brief on the investors’ behalf. Multiple state governments filed a joint brief.

Scientific Atlanta and Motorola
Merrill Lynch, the Securities Industry and Financial Markets Association, and Business Roundtable have all filed friend-of-the-court briefs.

LAWYERS

StoneRidge Investment Partners
Stanley Grossman, 65, partner at Pomerantz Haudek Block Grossman & Gross. Also suing: underwriters who issued bonds for Enron’s sham partnerships.
Scientific Atlanta and MotorolaStephen Shapiro, 61, partner at Mayer Brown. Previous job: deputy U.S. solicitor general.

SIDEBAR

StoneRidge Investment PartnersA StoneRidge victory could be bittersweet—one of its funds is heavily invested in Scientific Atlanta’s parent company, Cisco Systems.

Scientific Atlanta and Motorola
Justices John Roberts and Stephen Breyer said they will recuse themselves from the case because each owns more than $50,000 of Cisco stock. They could sell their shares and rejoin.

IMPLICATIONS

StoneRidge Investment Partners  If StoneRidge loses, it will be harder for other shareholder plaintiffs—such as investors in Enron—to recoup losses from securities frauds.
Scientific Atlanta and Motorola
If the cable-box makers lose, it could dissuade companies from engaging in legitimate business transactions, for fear of subsequent litigation.