Toward a More Enlightened Securities Jurisprudence in the Supreme Court? Don't Bank on it Anytime Soon

Abstract

This article discusses the Central Bank v. First Interstate Bank decision [114 S. Ct. 1439 (1994)], and its essential holding that no private right of action for damages exists against aiders & abettors of those who commit securities fraud under § 10(b) of the 1934 Securities Exchange Act. Author James redwood takes exception to the ruling in Central Bank and the method by which it was decided, which effectively threw out a long line of lower court cases upholding a private plaintiff’s right to sue secondary participants in fraud actions. The article analyzes the Supreme Court’s “lexicographic” method of deciding securities cases, ultimately concluding that such method is unnecessarily inflexible and inconsistently applied. Redwood provides and argument for the retention of the tripartite test for aiding & abetting liability, and provides an extended discussion of how the actions of Central Bank fit the knowledge / scienter prong of the test. The article further discusses how provisions of the 1939 Trust Indenture Act (TIA) indicate that the Court was wrong in dismissing the actions of Central Bank in the present case. Redwood concludes rather than simply “...thumb[ing] through a Webster’s dictionary...” when called upon to review § 10(b) cases, the Supreme Court owes a more rigorous duty to the securities bar when confronted with securities cases in the future. Instead of utilizing the begrudgingly formalistic and “lexicographic” method applied in Central Bank, Redwood proffers “[o]nly through rigorous, sustained analysis of the securities statutes, in light of the purposes and policies behind their enactment, can the [Supreme] Court properly serve as supreme interpreter of the laws.”

Keywords: Securities Exhange Act of 1934, 1934 Exchange Act, Securities, Securities Jurisprudence, Fraud, Securities Fraud, § 10(b), Aiders & Abettors, Secondary Participants, Formalistic Interpretation, Lexicographic, Policy, Purpose, Securities Statute