Chamber Warns of New Wave of Frivolous Securities Lawsuits

Urges First Circuit to Revisit Bad Ruling in SEC v. Tambone

WASHINGTON, D.C.—A recent decision by a three-judge panel of the First Circuit Court of Appeals that dramatically expands securities fraud liability should be reversed, the U.S. Chamber of Commerce's National Chamber Litigation Center argued in an amicus brief in SEC v. Tambone, filed earlier this week at the invitation of the First Circuit.

"The panel's decision effectively rewrites the securities laws to allow a new 'aiding and abetting' cause of action," said Robin Conrad, executive vice president of the National Chamber Litigation Center, the Chamber's public policy law firm. "The court expanded the authority of both the SEC and private plaintiffs to hold officers liable for merely relying on statements made by those they supervise. Time and again, the Supreme Court has rejected similar theories of vicarious liability."

On February 23, 2009 the U.S. Court of Appeals for the First Circuit invited the Chamber to submit an amicus brief to express its position on the court's ruling. In its brief, the Chamber urged the full First Circuit to rehear the case and reject the ruling adopted by a three-judge panel in December 2008. In that split decision, the court radically departed from the text of Section 10(b) by interpreting the law's prohibition on 'making' false statements as also prohibiting the 'use' of false statements made by others. In addition to radically expanding the SEC's enforcement authority, the Chamber warned that the ruling would also open up an entirely new class of private securities litigation. The Chamber filed its brief April 22, 2009.

"No doubt plaintiff's lawyers see the panel decision as their own stimulus plan," Conrad said. "If that decision is left to stand, we can expect a tidal wave of frivolous lawsuits. The ruling could cripple our recovery efforts to the detriment of investors and our economy."

NCLC is the public policy law firm of the U.S. Chamber of Commerce that advocates fair treatment of business in the courts and before regulatory agencies.

The U.S. Chamber is the world's largest business federation representing more than 3 million businesses and organizations of every size, sector, and region.

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