Second Circuit Affirms Bright Line Attribution Test for Secondary Actor Liability in Private Securities Fraud Actions
May 13, 2010
The Securities Litigation and Enforcement Practice
In Pacific Investment Management Co., the Second Circuit embraced a bright line test for Rule 10b-5 liability for secondary actors in private securities actions. The Court held that those who sign or otherwise allow a [false] statement to be attributed to them expose themselves to liability. Those who do not are beyond the reach of Rule 10b-5s private right of action. In so doing, the Court reaffirmed the distinction between primary liability and mere aiding and abetting or secondary liability, which no matter how substantial that aid may be, is not enough to trigger liability. While secondary actors typically include lawyers and accountants who assist in preparing public statements, they also can include other entities and individuals not employed by the public company who are involved in the public companys activities. A concurring opinion stressed the importance of the attribution issue, noted a split of authority and the lack of clarity in other Second Circuit precedent, and suggested that further clarification through en banc or Supreme Court consideration was needed.