Multiple Gatekeepers

Andrew F. Tuch

Washington University in Saint Louis - School of Law

March 23, 2010

Virginia Law Review, Vol. 96, Issue 7, pp. 1583-1672, 2010
Sydney Law School Research Paper No. 10/33

In the context of business transactions, gatekeepers are lawyers, investment bankers, accountants and other actors with the capacity to monitor and control the disclosure decisions of their clients – and thereby to deter corporate securities fraud. After each wave of corporate upheaval, including the recent financial crisis, the spotlight of responsibility invariably falls on gatekeepers for failing to avert the wrongs of their clients. A rich vein of literature has considered what liability regime would lead gatekeepers to deter securities fraud optimally, but has overlooked the phenomenon that multiple interdependent gatekeepers act on business transactions and thus form an interlocking web of protection against wrongdoing. To date the literature has adopted a unitary conception of the gatekeeper, assuming that a single gatekeeper acts on a transaction or, where multiple gatekeepers are involved, that each is independently capable of deterring securities fraud.
This article explains the pattern of multiple gatekeeper involvement that characterizes business transactions. It analyzes why gatekeepers exist at all and why corporations turn to a multiplicity of them for most transactions. It then extends gatekeeper liability theory to account explicitly for the possibility that the fraud-deterrence capacity of gatekeepers will be interdependent, and not simply independent. In doing so, the article draws on optimal deterrence theory and analogizes the position of multiple gatekeepers with that of joint tortfeasors. The article also assesses the U.S. federal securities law regime from the perspective of the prescriptions of gatekeeper liability theory, identifying gaps in the regime that arise from the fragmentation of gatekeeping services and suggesting reforms designed to compel cooperation among gatekeepers to fill them. The theory has implications for the post-financial crisis reform proposals that would impose gatekeeper liability on credit rating agencies, which the article specifically considers.

Number of Pages in PDF File: 91

Keywords: gatekeepers, optimal deterrence theory, gatekeeper liability, liability of lawyers, liability of investment banks, liability of auditors, securities fraud, joint tortfeasors, joint and several liability, credit rating agencies, aiding and abetting liability, multidisciplinary partnerships

JEL Classification: K13, K22

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Date posted: March 31, 2010 ; Last revised: September 11, 2013

Suggested Citation

Tuch, Andrew F., Multiple Gatekeepers (March 23, 2010). Virginia Law Review, Vol. 96, Issue 7, pp. 1583-1672, 2010; Sydney Law School Research Paper No. 10/33. Available at SSRN: http://ssrn.com/abstract=1577405

Contact Information

Andrew F. Tuch (Contact Author)
Washington University in Saint Louis - School of Law ( email )
Campus Box 1120
Saint Louis, MO 63130
United States
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