Litigation: 2nd Circuit lends a helping hand to the SEC

Quoting Learned Hand, 2nd Circuit relaxes standard for aider and abettor liability

In a case that alters the landscape of aider and abettor liability, the 2nd Circuit has just made it easier for the Securities and Exchange Commission (SEC) to civilly prosecute aiders and abettors of securities fraud by clarifying the standard for “substantial assistance.” According to the court’s logic, because the goal of SEC enforcement actions is deterrence, not compensation of a specific injured individual, the more strict proximate cause standard for civil plaintiffs should not be used to create a road bump in the SEC’s path.

As many readers may know, Section 20(e) of the Securities Exchange Act of 1934 allows the SEC, but not private litigants, to bring civil actions against “any person that knowingly provides substantial assistance” to a primary violator of the securities laws. To find a defendant liable as an aider and abettor in a civil enforcement action, the SEC must prove:

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Matthew Ingber

Matthew Ingber is a litigation partner at Mayer Brown.

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