Central Bank v. First Interstate Bank:Not Just the End of Aiding and AbettingUnder Section 10(b)

1. IntroductionIn Central Bank v. First Interstate Bank,(1) the Supreme Court shocked the securities industry.(2) On its own motion, the Court questioned and then abolished the aiding and abetting cause of action for securities fraud under the Securities Exchange Act of 1934 (1934 Act).(3) The Court's holding overruled thirty years of lower court precedent.Congress enacted the 1934 Act and the Securities Act of 1933 (1933 Act)(4) after the stock market crash of 1929. The 1933 Act is narrower in coverage than the 1934 Act, which reflected Congress's effort to regulate all aspects of securities trading.(5) Section 10(b) of the 1934 Act is a general antifraud provision that imposes civil liability on those who commit manipulative or deceptive acts in connection with the purchase or sale of securities.(6) For over thirty years, lower federal courts routinely allowed victims of manipulative or deceptive acts to recover not only against those who themselves violated Section 10), but also against those who aided and abetted the Section 10(b) violation.(7) Despite the history of the aiding and abetting cause of action, the Supreme Court in Central Bank concluded that aiding and abetting fell outside the text of Section 10(b). After Central Bank, therefore, courts can no longer allow Section 10(b) recovery for aiding and abetting a Section 10(b) violation.Central Bank sends a clear message: While courts may sometimes imply a private cause of action to penalize conduct that Congress has expressly proscribed, courts may not imply a cause of action creating liability for conduct that Congress has not expressly proscribed. Thus, Central Bank not only abolished the private cause of action for aiding and abetting under Section 10(b); Central Bank also instituted a new methodology for evaluating all implied causes of action. For example, lower federal courts have routinely recognized claims of conspiracy(8) and vicarious liability(9) under Section 10(b) as well as aiding and abetting under the Racketeer Influenced and Corrupt Organizations Act(RICO).(10) Each cause of action creates liability for conduct that Congress has not expressly proscribed. Thus, Central Bank raises serious questions about the continued vitality of these implied causes of action.Central Bank also affects the interaction among various participants in the American system of government. The Supreme Court, in effect, insists that Congress directly decide and expressly state where and when it wishes to penalize aiding and abetting conduct. Moreover, those with strong opinions about the appropriateness of aiding and abetting claims may no longer speak as litigants and amicus curiae; they now must shift their debate to Congress. Finally, civil plaintiffs must refocus their legal claim and present different facts in order to sustain a claim under Section 10(b).Part II of this Note reviews the background of aiding and abetting under Section 10(b) and discusses the Central Bank decision.(11) Part III examines Central Bank's effects on other implied causes of action. (12) Part IV describes the impact Central Bank has had and will continue to have on congressional debates and securities litigants and proposes a tactic that Congress should follow if it chooses to override Central Bank.(13) Finally, Part V suggests that, while certain aspects of the Central Bank decision deserve criticism, events since Central Bank demonstrate that with this particular securities issue, Congress, not the Court, is the better branch to resolve the dispute.II. The Central Bank DecisionA. The Implied Cause of Action Under Section 10(6)The aiding and abetting cause of action under Section 10(b) makes sense only against the background of Section 10(b)'s text and its interpretations by federal courts. The text of Section 10) does not expressly create a private cause of action.(14) However, federal courts traditionally have filled the interstices of federal statutes in the name of effectuating congressional intent. …