Law Firm and other Secondary Actors Not Liable to Investors
The U.S. Court of Appeals for the Second Circuit has ruled that secondary actors in securities offerings have no liability to investors unless the investors relied upon statements attributable to them. In the case, the Court dismissed claims against a law firm that participated in the drafting of allegedly misleading public offering documents. The Court opined that the statements upon which investors purportedly relied were not attributable to the law firm but to the issuer. In reaching in its conclusion, the Court rejected the SEC’s amicus curiae argument that any creator of misleading statements should have liability. The Court explained that the SEC’s position is inconsistent with the requirement that plaintiffs must show reliance on the misleading statements. The Court noted that, although a secondary actor may have regulatory aiding and abetting liability, investors may not pursue a private right of action for aiding and abetting.
OUR TAKE: A ruling to the contrary would expose every party that participates in a securities offering – lawyers, auditors, administrators, custodians – to the securities class action lawyers.