Senators Arlen Specter (D-PA), Edward Kaufman (D-Del.), and Jack Reed (D-RI) proposed new legislation, entitled Liability for Aiding and Abetting Securities Violation Act of 2009, that would provide a private right of action against third parties who aid and abet securities fraud. Passage of the bill would overturn the U.S. Supreme Court’s decisions in Central Bank of Denver v. First Interstate Bank of Denver and Stoneridge Investment Partners LLC v. Scientific-Atlanta, Inc.
Prior to the Central Bank decision, federal courts had implied a private right of action against secondary actors under Section 10(b) of the Securities Exchange Act of 1934. In Central Bank, the Supreme Court held that the implied private right of action applied to only “principal actors.” The 2008 Stoneridge decision further narrowed the scope of the implied private right of action by holding that two companies that allegedly concealed the wrongdoing of another company could not be sued as primary violators under section 10(b) of the Securities Exchange Act by the other company’s shareholders.