Oral arguments in the much anticipated Stoneridge Investment Partners v. Scientific Atlanta Inc. and Motorola Inc. case began before the Supreme Court today.

The plaintiffs, shareholders of Charter Communications, allege that Scientific Atlanta and Motorola knowingly participated in a scheme with Charter to artificially inflate the company’s annual earnings. They assert that Charter purchased thousands of cable TV boxes from Scientific Atlanta and Motorola for a $20 premium on each unit. The two suppliers then used the extra money to purchase advertising through Charter, inflating the company’s revenue for the fourth quarter of 2000.

The current law states that third parties who merely “aided and abetted” in fraud are not susceptible to lawsuits. Stanley Grossman, an investment lawyer arguing for Stoneridge, must prove that Scientific Atlanta and Motorola were directly involved in the fraudulent activity.

Should Stoneridge Investment Partners ultimately win the case, the decision will effect accounting firms, lawyers, investment bankers and any third party vendor of a company involved in securities lawsuits. If the court rules in favor of the defendants, then shareholders in future security fraud cases will lose an avenue for recovering losses.

Most significantly, the decision will affect the outcome of a pending trial of Enron shareholders who are seeking $40 billion in damages from investment firms and banks associated with the company’s collapse.

Only eight of the nine Supreme Court Justices will preside during the hearings. Chief Justice John Roberts sold $50,000 of Cisco stock in order to participate in the case. Justice Stephen Breyer, who also holds stock in the company, recused himself.

Commentary: Many experts predict the ruling to go 5-3 in favor of the defendants. Alito, Kennedy, Roberts, Scalia and Thomas are all predicted to follow their usual ‘pro-business’ stance. Scalia, Kennedy and Thomas already voted with the majority back in 1994 (Central bank of Denver v. First Interstate Bank of Denver) in a 5-4 decision ruling against giving liability to third parties who aid and abet in fraudulent activity. If Breyer was participating in today’s case it’s widely believed he would join the majority as well.

If the court does in fact side with the defendants, it will further the already heavily established pro-business slant of the Roberts court.