On November 10, 2009, a Senate discussion draft titled the “Restoring American Financial Stability Act of 2009” was released. Section 984 in the draft, to create a new private right of action for allegations of aiding and abetting violations of the Securities Exchange Act of 1934, is of particular concern, which is why the VSCPA is opposed to this language.
According to a letter the VSCPA sent Sen. Mark R. Warner on November 23, 2009, Section 984 will not only permit private rights of action for aiding and abetting under securities laws, but will also lower the current legal standard for conduct in aiding and abetting cases brought by plaintiffs’ attorneys from a standard of “knowingly” committing a violation to mere “reckless” behavior. Because recklessness is not defined, and as a practical matter is a vague standard, this change alone would result in a significant increase in litigation, the VSCPA said. Read the full letter for more information.
The VSCPA urged that Section 984 be stricken from the Restoring American Financial Stability Act, thereby leaving enforcement for aiding and abetting with the SEC, whose focus will be on those parties who engaged in fraudulent conduct rather than exposing a sizeable portion of the economy to expanded liability simply because of their “deep pockets.”