June 9, 2007
Will the US Take A Stand on Scheme Liability?
What position will the U.S. take on "scheme liability" under Rule 10b-5? The Washington Post reported last week that the SEC voted to file a brief with the Supreme Court on the side of investors in the Charter Communications case, arguing that a participant's involvement in a scheme could be so extensive that he is a primary violator and not just an aider-and-abetter against whom private parties cannot recover. The SEC asserted this position several years ago in the Enron litigation. However, the Treasury Department has urged the government to take a contrary position, reflecting Secretary Paulson's concerns that regulation and liability are having an adverse competitive effect on US markets. The decision rests with the Solicitor General's office, and we should know on Monday when briefs for the investors are due. See WPost, Investors, Advocates Worry About U.S. Position on Fraud Recovery
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