In an earlier post (here), I discussed legislation that Senator Arlen Specter introduced in July 2009 to legislatively overturn the U.S. Supreme Court’s decision in Stoneridge and allow private actions for aiding and abetting liability. Though this proposed legislation is a matter for serious concern, there was always the possibility that given everything that Congress has on its plate, this particular initiative might not make the cut.
There is, however, some significant likelihood that some form of financial reform legislation eventually will be enacted into law. Indeed, as discussed here, the House of Representatives has already passed its version of financial reform legislation.
The Senate has yet to act, but among the leading proposed Senate financial reform bills under consideration is Senator Chris Dodd’s proposed "Restoring American Financial Stability Act of 2009" (here).
As noted in a January 4, 2009 memo by K. Stewart Evans, Jr. of the Pepper Hamilton law firm (here), the bill contains a provision "hidden on page 795 of 1,136" that amends the ’34 Act to provide liability for any person that "knowingly or recklessly provides substantial assistance" to a person whose conduct violates the securities laws. Evans notes further that the provision would impose liability without the claimant having to even prove that reliance on the secondary actors’ statements.
My concerns about the possible imposition of aiding and abetting liability are reflected in my prior post. Evans has his own concerns, arguing that the proposed amendment would be "dangerous and destructive to American business."
But regardless of the merits of the proposal, the fact that it proposed amendment creating private aiding and abetting liability is no longer just its own free-floating suggestion, but has now been incorporated into a comprehensive piece of financial reform legislation does seem to suggest that the proposal could be that much closer to being enacted into law.
Of course, there is still a long way to go before we know whether or not the Senate will get around to enacting any financial reform legislation, much less what form that legislation might ultimately take. In addition, any bill passed by the Senate would have to be reconciled with the House’s bill, so what might finally emerge is at the point anybody’s guess.
But all of that said, the incorporation of the aiding and abetting provision into Dodd’s proposed Senate bill does seem to suggest the possibility that the aiding and abetting initiative will not simply fall by the wayside as the proposed legislation goes forward. Rather, at this point it looks like somebody is going to have to affirmatively knock the proposal out to prevent it from remaining in.
Dismissal of BAE Bribery Civil Suit Affirmed: As I have noted in prior posts (most recently here), allegations of bribery in connection with BAE’s fighter aircraft contract with Saudi Arabia – and in particular the UK’s election not to investigate the allegations due to national security concerns — not only have proven highly controversial, but also has generated follow on civil litigation.
As discussed in a recent post on the FCPA Blog (here), on December 29, 2009, the Court of Appeals for the D.C. Circuit affirmed the lower court’s dismissal of the derivative lawsuit that had been filed against BAE, as nominal defendant, and certain of its directors and offices Judge Edwards, writing for the court found that under the 1843 English case of Foss v. Harbottle, 2 Hare 461, 67 E.R. 189, "the company, not a shareholder, is the proper plaintiff in a suit seeking redress for wrongs allegedly committed against the company." The court further found that the BAE case did not come within any exceptions to the rule.
And Speaking of U.S. Lawsuits Against Foreign Companies: According to a January 6, 2010 Law.com article by Andrew Longstreth (here), the three-month long securities class action jury trial against Vivendi and certain of its directors and officers is drawing to a close. According to the article, the parties are now completing their closing statements, and the case will be submitted to the jury later this week.
Look for A Lot More Cases Like This in 2010: Though thecomplaint was actually filed in the Northern District of Georgia on December 31, 2009, the plaintiffs’ lawyer press release is dated January 4, 2010, and the investor lawsuit involving a failed bank make prefigure many more lawsuits of the same kind in the months ahead in 2010.
The lawsuit arises out of the failure of Haven Trust Bancorp, whose operating banking subsidiary was taken over by the FDIC on December 12, 2008. On February 23, 2009, the holding company filed for bankruptcy. The defendants include certain former officers of the holding company and the bank. The plaintiffs allege that the defendants misrepresented the bank’s financial condition and lending practices in order to induce the plaintiff investors to invest in the holding company. The plaintiffs assert claims under the federal securities laws, Georgia securities laws, as well as certain common law claims.
In light of the 140 banks that failed during 2009, there undoubtedly will be more claims like this to come, both filed on behalf of investors and on behalf of the FDIC as receiver of the failed institutions.