Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, April 7, 2008

New York Law Firm Can be Liable as Aider & Abettor of Securities Fraud under Oregon Statute

A disappointed investor in a hedge fund, residing in Oregon, can sue the New York law firm that drafted the offering documents for aiding and abetting the securities fraud of the principal, who had already pleaded guilty to securities fraud violations, under the Oregon securities statute.  The federal district court for the S.D.N.Y.  ruled against the defendant on a motion to dismiss and rejected its arguments that federal law preempted the statute statute and the state statute violated the dormant commerce clause.  The court did, however, agree with defendant that plaintiff failed to allege that the securities were not federally covered securities and dismissed the claim based on sale of unregistered securities.  The court noted that the U.S. Supreme Court, as recently as Stoneridge Investment Partners v. Scientific-Atlanta, Inc., recognized state authority to regulate and enforce its own fraud statutes in the securities area independent of federal law.  It also found nothing in National Securities Markets Improvement Act (NSMIA) that preempts state oversight of fraud or deceit in the securities area.  The Oregon Blue Sky Statute, modeled on the ALI's 1956 Uniform Securities Act, expressly provides a cause of action against aiders and abettors of securities fraud, and the Oregon Supreme Court has previously found that attorney preparation of legal materials for an offering qualifies as participating in or materially aiding under the statute.  The court noted that while the principal probably lied to the law firm, the statute requires the defendant to establish its due diligence as an affirmative defense.  Houston v. Seward & Kissel, LLP, 2008 WL 818745 (S.D.N.Y. Mar. 27, 2008).

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