Wrong Call on Securities Fraud

Article excerpt

For years, nearly every federal court that has dealt with the matter has routinely allowed defrauded investors to sue not only the perpetrators, but anyone who aided and abetted them in securities fraud. Until recently, virtually everyone believed it was settled law that accountants, lawyers and financial consultants who assisted such fraud could be held liable for their actions. Now comes the Supreme Court to tell an astonished investor community that these individuals can't be held liable after all. It's the wrong call.

In a 5-4 ruling, the court decided that because there is no language in the 1934 Securities Exchange Act specifically stating that aiding and abetting a securities fraud is a crime, no private suit against such individuals may go forward. The court acted on a case where an investor sued the Central Bank of Denver, claiming that in its capacity as trustee for an offering of municipal bonds for Colorado Springs, it abetted the fraud that caused the city to default.

The dissenting justices argued that since liability for aiding and abetting has long been accepted and Congress hasn't acted to eliminate it, the matter should left alone. …