A recent decision by the Second Circuit Court of Appeals in New York will make it easier for the U.S. Securities and Exchange Commission (SEC) to bring charges against someone for aiding or assisting in securities fraud – further exposing those involved in the already heavily regulated industry to additional criminal liability.
Court of Appeals Decision
Earlier this month, the federal appellate court overturned a 2010 federal decision that had originally determined that the SEC must satisfy a higher legal burden in order to prove that an individual “aided and abetted” in securities fraud. However, the recent opinion effectively restored the case against a company’s former chief financial officer over allegations that he aided in accounting fraud.
Specifically the appellate court declined to follow the reasoning of the lower court which had originally required the SEC to show that the defendant was the “proximate” cause of the harm before they could be held liable for aiding and abetting the alleged fraud.
Instead, the opinion of the appeals court greatly lowered this burden – stating now that the SEC only has to show that the defendant gave “substantial assistance” to the fraud, which can be shown by proving the defendant connected themselves with the fraud, and through some action, attempted to make it successful.
When it comes to securities fraud, there seems to be ever-increasing regulatory oversight, which also seems to be constantly changing. Because of this, it is harder than ever to know when you may be doing something inappropriate – with this opinion making it even easier for federal regulators to allege criminal liability.
Source: Reuters, “U.S. court eases SEC burden to show defendant aided fraud,” Jonathan Stempel
Our firm often handles the legal defenses of those accused of securities fraud in the complex and heavily regulated industry. If you would like to learn more about our securities fraud defense practice, please visit our New York City Securities Fraud page.