A Framework for Analyzing Attorney Liability Under Section 10(b) and Rule 10b-5 by Gary Bishop :: SSRN

Section 10(b) of the Securities Exchange Act of 1934 § 10(b), 15 U.S.C. § 78j(b) provides, in pertinent part that "It shall be unlawful for any person, directly or indirectly. . (b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, . . any manipulative or deceptive device ."


In Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 177, 191 (1994) the Supreme Court rejected the notion of aiding and abetting liability in a private action under the federal securities laws.  Thus lawyers, accountants, banks, and mutual fund investment advisers are civilly liable under section only when their conduct satisfies the requirements for primary liability.  That is - just being a facilitator of a fraud, absent knowing participation in the fraud - will not be actionable under the Act.  But just where should the line be drawn? New England Law School law professor Gary Bishop argues that

“an interpretation of the liability standard under section 10(b) and Rule 10b-5 that requires an allegedly false or misleading statement to be attributed to the maker and that narrowly defines the maker of the statement as the person with ultimate authority over it is consistent with the deterrence of fraud and complete disclosure of information in the securities markets."

- GWC

A Framework for Analyzing Attorney Liability Under Section 10(b) and Rule 10b-5 by Gary Bishop :: SSRN:
by Gary Bishop
Absract
This article analyzes recent developments in the law of secondary party liability under the general antifraud provision of the Securities Exchange Act of 1934, section 10(b), and its corresponding Securities and Exchange Commission rule, Rule 10b-5. The article focuses on a specific type of secondary party, securities lawyers, who make their living representing securities issuers and face a myriad of challenges in doing so. Among those challenges are defrauded investors seeking recovery of their losses from both the issuer of the failed investment securities and from the lawyers who represent the issuer. These securities fraud actions against lawyers raise serious questions about the proper scope of liability under the federal securities laws. The recent developments discussed in the article indicate that the standard for secondary party liability is increasingly becoming one that attorneys acting in the traditional role of adviser and draftsperson to securities issuers will not satisfy.

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