Sunday, April 15, 2007
Scheme Liability Under 10(B) of the Securities Exchange Act of 1934, by TAAVI ANNUS, University of Missouri at Columbia - School of Law, was recently posted on SSRN. Here is the abstract:
In private securities litigation, plaintiffs often turn against entities who participated in various ways in the securities fraud of the issuer. However the Supreme Court held in 1994 that there is no private right of action against parties aiding and abetting securities law violations under § 10(b) of the Securities Exchange Act of 1934. In the last few years, plaintiffs have tried to avoid this limitation by using a theory called “scheme liability.” This paper provides an overview of the recent cases from lower courts where plaintiffs have tried to utilize the theory. The paper shows that scheme liability is applied in cases involving very different fraudulent practices and against actors with very different functions. Due to this wide range of circumstances, it is probably inappropriate to formulate a single test or rule for deciding scheme liability cases. Instead, courts should approach each case separately, based on the type of defendant and the type of claim.