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Of Complicity and Compliance: A Rules-Based Anti-Complicity Strategy Under Federal Securities Law


Joseph A. Franco


Suffolk University Law School

February 3, 2012

University of Pennsylvania Journal of Business Law, Vol. 14, p. 1, Fall 2011
Suffolk University Law School Research Paper No. 11-43

Abstract:     
Most policy analyses aimed at deterring complicity in securities law violations implicitly assume that a standards-based regime (such as liability standards for aiding and abetting) represents the best strategy for accomplishing that objective. Moreover, many commentators regard the restoration of private damage remedies against complicit secondary actors as essential to the success of any anti-complicity regime. These concerns are linked to the Supreme Court’s Central Bank trilogy — Central Bank, Stoneridge Investment Partners, and Janus Capital Group — decisions that mechanically constrain a principled understanding of the relationship between primary and secondary liability standards. This article offers a fundamentally different policy approach in thinking about the problem of complicity in securities violations. It uses the concept of anti-complicity policies — i.e., policies designed to deter secondary participants from providing assistance to, or to make such participants accountable in monitoring or preventing, more fundamental forms of misconduct — as a rubric to compare the effectiveness of two different classes of strategies: standards-based policies and rules-based policies. The article then argues that enforcement objectives would be better served by refocusing anti-complicity policies on a rules-based regime. First, a rules-based regime may be more effective in a wide variety of contexts than a standards-based regime. Second, while a rules-based regime is not inconsistent with private liability for aiding and abetting, the combination of publicly-enforced standards and robust anti-complicity rules may be more socially efficient than a regime that relies almost exclusively on public sanctions and private remedies for aiding and abetting. Third, a rules-based regime (even if not explicitly conceived of as such) has already begun taking shape within federal securities law on an ad hoc basis that gives some sense of the potential feasibility of a more robust rules-based approach. This article acknowledges two significant caveats. It does not recommend eliminating anti-complicity standards (such as aiding and abetting principles) because such standards provide a powerful and necessary backstop to the inevitable gaps and interstices of a rules-based regime. Furthermore, the article does not argue that the emerging use of rules-based strategies has produced a fully adequate anti-complicity regime. Instead, the article urges continued movement toward a more robust rules-based anti-complicity regime, a result that at a minimum would require a much broader grant of rulemaking authority to the SEC.

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Date posted: October 3, 2011 ; Last revised: February 4, 2012

Suggested Citation

Franco, Joseph A., Of Complicity and Compliance: A Rules-Based Anti-Complicity Strategy Under Federal Securities Law (February 3, 2012). University of Pennsylvania Journal of Business Law, Vol. 14, p. 1, Fall 2011; Suffolk University Law School Research Paper No. 11-43. Available at SSRN: http://ssrn.com/abstract=1937593

Contact Information

Joseph A. Franco (Contact Author)
Suffolk University Law School ( email )
120 Tremont Street
Boston, MA 02108-4977
United States
617-573-8152 (Phone)
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