High Court to Consider Liability of 'Secondary Actors' in Securities Fraud

The Supreme Court said Monday it will consider whether shareholders of companies that commit securities fraud should be able to sue investment banks, lawyers and others that allegedly participated in the fraud.
The case, which won't be argued until the Court's next term beginning in October, will be closely watched on Wall Street and in law firms around the country as federal appeals courts have split on whether such "secondary actors" can be held liable.
Last week, the 5th U.S. Circuit Court of Appeals ruled against a class action lawsuit brought by former Enron shareholders against several investment banks, including Merrill Lynch & Co. Inc. and Credit Suisse Group, over their alleged role in Enron's collapse.
The 5th Circuit found that the banks only "aided and abetted" Enron's fraud. Under a 1994 Supreme Court ruling, companies are generally protected from shareholder lawsuits if they aid and abet fraud, though the Securities and Exchange Commission can pursue civil actions against them.