Virginia Law Review, Vol. 96, Issue 7, pp. 1583-1672, 2010
91 Pages Posted: 31 Mar 2010 Last revised: 11 Sep 2013
Date Written: March 23, 2010
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.
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
Suggested Citation: Suggested Citation