I just came across this essay by Richard Epstein on the Stoneridge case. The whole thing is interesting, but here’s an extended excerpt:
Yet, normatively speaking, why should secondary violators be able to escape private damage suits like those brought against primary wrongdoers? One way to end the discrepancy is to deny all private damage actions against primary offenders, which is not as farfetched as it sounds.
The key vice of these private suits is to overdeter wrongful conduct. For example, the class that sued Charter let all unfortunate buyers at inflated prices recover for their market losses. But it does not require the lucky sellers of overpriced stock to disgorge the fortuitous profits from selling overpriced stock. The net damage recovery from this temporary imbalance in the markets far exceeds the social losses from the underlying chicanery. Across the board, harsh penalties for nondisclosure now induce firms to remain silent lest they incur huge liabilities for modest misstatements. Administrative remedies can be better calibrated to the severity of the underlying wrong.
Even if a damage suit against primary wrongdoers makes sense, the second round of suits is overkill. Allow this suit against Scientific-Atlanta and Motorola, and then no iron barrier protects any vendors from charges of “knowingly” engaging in fraudulent transactions with hundreds of potential buyers who thereafter mischaracterize these deals in their own financial accounting. Just what fraction of the total loss is attributable to their actions as opposed to other financial gimmicks? And should secondary actors be held liable for all losses if it is hard to isolate a distinct fraction for which they are responsible? The current law of joint and several liability suggests that no apportionment will be made unless it can be made.
Imposing crushing litigation burdens on second-tier defendants who receive no direct benefit from the public fraud is a heavy-handed way to improve transparency of securities markets. The expanded liability has two vices: First, it chews up huge social losses in litigation costs that detract key executives from their major jobs. Second, it leads to erroneous findings on liability rates of error whereby some innocent defendants pay large sums while some guilty parties go free. No system that costly and erratic supplies effective deterrence against fraud.