Proposed Federal Legislation Seeks to Overturn Supreme Court Limits on Aiding and Abetting Liability in Certain Securities Cases

March 31, 2010

Jeffrey J. Jones, J. Todd Kennard, Marjorie P. Duffy

Under recently-introduced legislation, a company’s bankers, auditors, business partners, and outside lawyers could be held liable in civil actions under Section 20 of the Securities Exchange Act of 1934 (“1934 Act”) if they provide “substantial assistance” in violation of the statute. According to Senator Arlen Specter’s statement accompanying Senate Bill 1551, the Liability for Aiding and Abetting Securities Violations Act of 2009, “[t]he massive frauds involving Enron, Refco, Tyco, Worldcom, and countless other lesser-known companies during the past decade have taught us that a stock issuer’s auditors, bankers, business affiliates, and lawyers—sometimes called ‘secondary actors’—all too often actively participate in and enable the issuer’s fraud.” According to Senator Specter, the amendment would overturn two prior Supreme Court decisions holding that the 1934 Act does not allow private plaintiffs to sue alleged violators who did not themselves commit an act in violation of the statute even if they allegedly aided and abetted others to violate the law...

Proposed Federal Legislation Seeks to Overturn Supreme Court Limits on Aiding and Abetting Liability in Certain Securities Cases