In one of the most important securities cases in years, the Supreme Court ruled today that investors cannot bring fraud claims against parties that know about securities fraud but did not directly mislead investors themselves.

Lyle Denniston at ScotusBlog summarizes the holding well:

Investors, the Court said, may only sue those who issued statements or otherwise took direct action that the investors had relied upon in buying or selling stock — whether that involved public statements, omissions of key facts, manipulative trading, or conduct that was itself deceptive.

The most immediate casualty will likely be a $40 billion class action suit by Enron shareholders, but it’s also a blow to the theory of “scheme liability.” Under scheme liability, all parties that are engaged in a scheme that deceives investors would be at fault. The theory is that if the parties had not assisted the deceiving company, the company’s auditors would not have been deceived, and their financial statements would have been accurate.

As per David Stout at The New York Times:

The Stoneridge ruling appears to offer protection for accountants, lawyers and others who may know about corporate shenanigans but can establish that they are not directly involved in them.