The key securities litigation event this week is of course the Supreme Court’s decidedly pro-business – but also pro-SEC enforcement – decision in Stoneridge, the case many thought might be the decision of the century. In addition, the SEC continued its high-profile war on insider trading and a defendant in the options backdating class action learned his fate.

First, the Supreme Court handed down its decision in Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., Case No. 06-43, slip. Op. (Jan. 15, 2008), resolving a key question concerning the scope of liability under the securities antifraud provision, Section 10(b). The High Court rejected the plaintiff’s argument that third-party vendors could be held liable under the theory of “scheme liability” for allegedly contributing to a transaction later used by the issuer to falsify its books and defraud its shareholders.

The significance of the ruling is twofold. First, it defines and charts a focused and narrow course for future private damage actions by focusing on a key element that must be established in these types of cases. It gives business entities much of the certainty they have long sought in this difficult area. Second, the decision defines the type of conduct prohibited by Section 10(b) and rejects the efforts of some circuit courts to constrict the reach of the provision. This portion of the ruling is important not only for private damage class actions, but also SEC enforcement cases, since Section10(b) is frequently the predicate of both types of actions. Thus, while Stoneridge narrows the scope of liability in damage actions, it reaffirmed the broad reach of SEC enforcement actions.

Second, the SEC charged two former PricewaterhouceCoopers employees with insider trading. In a settled complaint, the SEC alleged that Gregory Raben, a former PwC auditor, and William Borchard, a former PwC senior associate, used their access to sensitive inside information about the audit firm’s clients to allow Mr. Raben and two others he tipped to trade ahead of a series of corporate takeovers on six different occasions. The scheme continued until October 2006 when PwC’s Office of General Counsel discovered the matter and referred it to the SEC. Both defendants consented to the entry of statutory injunctions. In addition Mr. Raben agreed to disgorge his trading profits and those of two acquaintances he tipped totaling over $23,000 and pay a civil penalty in an equal amount. Mr. Borchard agreed to a civil penalty equal to Mr. Raben’s trading profits. SEC v. Raben, Case No. CV-08-0250 EMC (N.D. Cal. Filed January 15, 2008). The SEC’s Litigation Release is available here.

Finally, Gregory Reyes, the former Brocade Communications CEO and the defendant in the first government enforcement action in the options backdating scandal, learned his fate, as he was sentenced 21 months in prison. Mr. Reyes, who was convicted in August, was also ordered to pay a $15 million fine

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