US Senator Arlen Specter recently announced his intention to offer an amendment to the Financial Stability Act that would dramatically change the landscape for many of SEC registrants. His pro-posed amendment would authorize a private cause of action for aiding and abetting violations of the securities laws, reversing the Stoneridge Supreme Court decision.
Under the existing regime only the SEC is author-ized to bring aiding and abetting actions for certain violations of the securities laws. The proposed amendment would allow plaintiff lawyers to sue anyone doing business with a company alleged to have committed fraud, without regard to whether the person intentionally participated in the alleged fraud. This attempt to confer a right of action in the hands of the plaintiffs bar would clearly have huge ramifications for a significant number of corporates. If Specter’s proposals become law, US litigation could potentially be triggered by anyone doing business with an SEC registrant.