The Securities and Exchange Commission’s (SEC) enforcement program avoided a major blow in August as the 2nd Circuit reversed a decision that would have substantially raised the bar for aiding and abetting claims in SEC civil enforcement actions.
In an opinion authored by U.S. District Judge Jed Rakoff of the Southern District of New York, sitting by designation for the 2nd Circuit, the federal appeals court in Securities and Exchange Commission v. Joseph F. Apuzzo clarified and simplified the test for substantial assistance, one of the necessary components of aiding and abetting liability.
Previously, Judge Rakoff wrote, the 2nd Circuit had established a proximate cause standard—but only for private tort actions (and prior to the Supreme Court’s 1994 ban on private plaintiff claims for aiding and abetting securities fraud in Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A.).