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The Implications of Central Bank

Document Type

Article

Language

English (en)

Publication Date

1993

Publication Title

Business Lawyer (ABA)

Abstract

Two recent events have focused attention on private federal securities litigation: (i) The Supreme Court decision in Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A. I holding that a private plaintiff may not maintain an aiding and abetting lawsuit under section 10(b) and rule 10b-5, the principal antifraud provisions of the Securities Exchange Act of 1934 (Exchange Act); and (ii) The introduction by Senator Dodd and four cosponsors of Senate Bill 1976 (Dodd Bill), which, among other proposals, would (a) eliminate bonus payments to named plaintiffs; (b) limit attorneys' fees to a percentage of recovery; (c) require special verdicts; (d) limit named plaintiffs to those owning the lesser of one percent of the securities subject to the litigation or $10,000 (in market value) of these securities; (e) specify a variety of alternative dispute resolution mechanisms; (f) require the appointment of a guardian ad litem or plaintiff steering committee for the plaintiff class; (g) specify new pleading requirements for securities fraud actions; (h) eliminate civil liability for securities violations of the Racketeer Influenced and Corrupt Organization Act (RICO); (i) specify new requirements for the Securities and Exchange Commission (SEC or Commission) to consider regulatory or legislative changes to provide safe harbors for forward-looking statements; and (j) substitute proportionate liability for joint and several liability.

Of these two events, the Supreme Court decision in Central Bank is of greater immediate importance. There appears to be no principled way to limit Central Bank to private section 10(b) aiding and abetting claims. The decision would appear to signal the end of SEC section 10(b) aiding and abetting claims as well as other private and SEC derivative section 10(b) liability theories such as respondeat superior and conspiracy.

The broadest concern suggested by Central Bank is that it may somewhat reduce investor confidence in United States securities markets. But this is not the only significant implication of the decision. When viewed in conjunction with the Dodd Bill, the decision also focuses attention on the nature of derivative liability. To the extent that the accountants and attorneys who have been significant proponents of new restrictive legislation such as the Dodd Bill make a persuasive case, it is most clearly related to the issue of whether proportionate (rather than joint and several) liability should be the applicable standard in aiding and abetting and other derivative liability claims.

This Article addresses seriatim: (i) The Supreme Court decision in Central Bank; (ii) the implications of that decision; and (iii) what should be the appropriate liability standard in derivative claims.

Keywords

Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., Securities Law

Publication Citation

Joel Seligman, The Implications of Central Bank, 49 Bus. Law. 1429 (1993)

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