August 11, 2009

Restoring Aiding And Abetting Liability

The big news item from last week was the introduction of congressional legislation that would create a private action for the aiding and abetting of securities violations. The bill (which is being sponsored by Senator Specter) effectively would overturn the Central Bank and Stoneridge decisions. Investors would have an enhanced ability to bring claims against "secondary" actors in the securities markets - e.g., lawyers and investment banks.

The key provision in the bill amends Section 20(e) of the Securities Exchange Act of 1934 to include the following: "For purposes of any private civil action implied under this title, any person that knowingly or recklessly provides substantial assistance to another person in violation of this title, or of any rule or regulation issued under this title, shall be deemed to be in violation of this title to the same extent as the person to whom such assistance is provided."

Senator Specter's remarks upon introducing the bill can be found here. The public commentary on the bill includes a sharply critical Wall Street Journal editorial and academic assessments from Bainbridge and Smith.

Posted by Lyle Roberts at August 11, 2009 7:54 PM | TrackBack
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