Wednesday, April 12, 2006

Eighth Circuit Addresses Aiding & Abetting Liability

Ever wonder why you get that free cable TV? C’mon admit it, you know you’ve received free cable at some point. Oh, sorry, you were the one who reported it right away, and demanded the cable company come out today (at some unknown point between 6 AM and 11:30 PM, of course) and get it shut off. Then, you hand-delivered a check (uphill through a ferocious blizzard) to the company for the exact amount of free cable you received, regardless if you watched. You are so good, bet even Johnny’s Gram-gram is smiling down upon you right now.

Anyway, back to the point. The reason you got free cable was so your friendly publicly traded cable company can claim you as a subscriber, thus boosting (temporally and artificially) the number of customers they can claim they have, silly. Well, at least that’s part of the allegations in the Charter (NASDAQ: CHTR) securities class action.

But today, we are only concerned with Plaintiffs’ appeal of their failed attempt in the District Court to add two of Charter’s vendors (that’s who Charter purchased the set-top boxes from) into the mix of Defendants, and to find out what the Eighth Circuit is going to do about it.

Well, apparently not much, as the Panel held that "we are aware of no case imposing § 10(b) or Rule 10b-5 liability on a business that entered into an arm's length non-securities transaction with an entity that then used the transaction to publish false and misleading statements to its investors and analysts." Indeed, "this point is significant," because "to impose liability for securities fraud on one party to an arm's length business transaction in goods or services other than securities because that party knew or should have known that the other party would use the transaction to mislead investors in its stock would introduce potentially far-reaching duties and uncertainties for those engaged in day-to-day business dealings. Decisions of this magnitude should be made by Congress."

So Plaintiffs lose this battle, and their free HBO. What, no Soprano's? Now that's enough to get the Supreme's involved.

You can read In re Charter here, or read the briefs, or even listen to the oral argument, issued April 11, 2006, at 2006 U.S. App. LEXIS 8798.

Nugget: "Thus, any defendant who does not make or affirmatively cause to be made a fraudulent misstatement or omission, or who does not directly engage in manipulative securities trading practices, is at most guilty of aiding and abetting and cannot be held liable under § 10(b) or any subpart of Rule 10b-5."

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