Stoneridge v Scientific-Atlanta is one of those battles where both
sides really deserve to lose. But I am very glad that it’s the plaintiffs who
are actually losing
this one. For all the lobbying
surrounding the case, the central fact are pretty clear: Congress has repeatedly
refused to hold companies like Scientific-Atlanta responsible for others’ frauds
in cases like this. The only reason to find in favor of the plaintiffs, then,
is, as Ruth Bader Ginsburn suggested
in court, that "such a rigid rule would leave many victims of stock fraud
with no recovery".
But I’m far from convinced that someone who loses money in the stock market
should, as a matter of principle, always be able to sue someone in an attempt
to recover that money – at least if there was some kind of fraud involved.
Fraud is a criminal act, and has criminal remedies. Unleashing a tidal wave
of class-action suits from people with mutual funds is highly unlikely to benefit
anybody except for class-action lawyers. There are risks to any activity, and
one of the risks to investing in the stock market is that there will be stock
fraud. If there is, you can sue the company which defrauded you – but
let’s please not start allowing people to sue third parties as well. That is
truly a recipe for chaos.