During a hearing this week, most members of the U.S. Supreme Court appeared skeptical of investors’ arguments in a closely watched securities case over the liability of investment banks, vendors, and others who help companies mislead shareholders.

The high court heard oral arguments Oct. 9 in Stoneridge Investment Partners v. Scientific-Atlanta, a case that arose from a class-action lawsuit by Charter Communications investors against two vendors who allegedly helped the cable television company improve its reported earnings.

The case, which one industry group has called the most important securities case in a generation, has attracted at least 30 briefs from investor advocates, labor funds, state officials, business interests, lawmakers, and former Securities and Exchange Commission officials. Donald Langevoort, a Georgetown University law professor, has compared the case to the high court’s landmark Roe v. Wade ruling on abortion.

The Supreme Court’s ruling in Stoneridge potentially could limit the ability of other investors to bring claims against other secondary actors, including Enron’s and HealthSouth’s former investment bankers. Billions of dollars may be at stake, as investment banks have funded most of the securities settlements obtained by WorldCom and Enron investors.

While the Supreme Court ruled in 1994 that investors couldn’t bring securities fraud claims against “aiders” and “abettors,” the Stoneridge investors contend that they should be able to sue firms that knowingly participate with company officials in schemes to defraud shareholders, even if those firms make no misleading statements to investors.

Business interests warn that this “scheme liability” theory would lead to more lawsuits and undermine U.S. competitiveness. They argue that a ruling for investors would contravene the intent of Congress, which corporate advocates contend, has only authorized the SEC to bring claims against secondary actors.

Investor advocates argue that scheme liability is necessary to maintain the integrity of U.S. capital markets. “If the Supreme Court rejects scheme liability in the Stoneridge case, in the future, banks, accountants, law firms, and others who intentionally commit fraud in order to deceive the investing public will be immune from any responsibility to their victims,” the University of California, the lead investor plaintiff in the federal Enron class section, said in a press release.

While the justices' questions during oral arguments do not always signal how they may rule in a given case, most of them, except for Justices Ruth Bader Ginsburg and David Souter, appeared unsympathetic to the Charter investors’ arguments.

Chief Justice John Roberts said the court should defer to Congress, which acted to limit class-action suits by investors in late 1990s. “Congress has kind of taken over for us . . . My suggestion is that we should get out of the business of expanding” securities fraud liability, Roberts told attorney Stanley M. Grossman, who represents the Charter investors.

Justice Anthony Kennedy expressed concern about the potentially broad scope of the scheme liability theory. "[T]here are any number of kickbacks and mismanagements and petty frauds that go on in business, and business people know that any publicly held company's shares are going to be affected by its profits, so I see no limitation to your proposal” for determining liability, Kennedy told Grossman.

Six of the justices who decided the 1994 case are still on the court. Those justices split 3-3 on whether to expand liability under Section 10(b) the Securities Exchange Act of 1934 to include those who aid or abet primary violators. The court’s two newest appointees, Roberts and Justice Samuel Alito Jr., generally have sided with business interests in high profile cases. Justice Stephen Breyer, who has reported owning the stock of Scientific-Atlanta’s parent, Cisco Systems, is not participating in the case.

The Supreme Court likely will issue a decision in the Stoneridge case by next June.