Opinion ID: 1367722
Heading Depth: 3
Heading Rank: 1

Heading: History of the Attribution Requirement

Text: The distinction between primary liability under Rule 10b-5 and aiding and abetting became especially important after the Supreme Court's 1994 decision in Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 114 S.Ct. 1439, 128 L.Ed.2d 119 (1994). That case involved the issuance of bonds by a public building authority and plaintiffs' allegations that Central Bank of Denver, the indenture trustee for the bond issues, aided and abetted the issuer in committing securities fraud by agreeing to delay an independent appraisal of the real property securing the bonds. Id. at 167-68, 114 S.Ct. 1439. After reviewing the text and history of § 10(b), the Supreme Court concluded that the 1934 [Exchange Act] does not itself reach those who aid and abet a § 10(b) violation. Id. at 177, 114 S.Ct. 1439. To hold otherwise, it explained, would be to impose . . . liability when at least one element critical for recovery under 10b-5 is absent: reliance. Id. at 180, 114 S.Ct. 1439. Despite holding that Rule 10b-5 liability does not extend to aiders and abettors, the Supreme Court acknowledged that secondary actors could, in some circumstances, still be liable for fraudulent conduct. Id. at 191, 114 S.Ct. 1439. Specifically, the Court explained that [a]ny person or entity, including a lawyer, accountant, or bank, who employs a manipulative device or makes a material misstatement (or omission) on which a purchaser or seller of securities relies may be liable as a primary violator under 10b-5, assuming all of the requirements for primary liability under Rule 10b-5 are met. In any complex securities fraud, moreover, there are likely to be multiple violators. . . . Id. (citation omitted). We considered the effect of Central Bank on private securities litigation against secondary actors in Shapiro v. Cantor, 123 F.3d 717 (2d Cir.1997). Shapiro involved claims against the accounting firm Deloitte & Touche and its predecessor-in-interest for alleged complicity in the deceptive conduct of a limited partnership. Id. at 718-19. We held that plaintiffs failed to state a claim for a primary violation of securities laws against Deloitte & Touche because [a]llegations of assisting, participating in, complicity in and similar synonyms used throughout the complaint all fall within the prohibitive bar of Central Bank. A claim under § 10(b) must allege a defendant has made a material misstatement or omission indicating an intent to deceive or defraud in connection with the purchase or sale of a security. Id. at 720-21 (footnote omitted); see also id. at 720 ([I]f Central Bank is to have any real meaning, a defendant must actually make a false or misleading statement in order to be held liable under Section 10(b). Anything short of such conduct is merely aiding and abetting, and no matter how substantial that aid may be, it is not enough to trigger liability under Section 10(b). (quoting In re MTC Elec. Techs. Shareholders Litig., 898 F.Supp. 974, 987 (E.D.N.Y.1995))). The principle that Central Bank requires the attribution of false statements to the defendant at the time of dissemination first appeared in our 1998 decision in Wright v. Ernst & Young LLP, 152 F.3d at 175. Wright involved claims against the accounting firm Ernst & Young and allegations that the firm orally approved a corporation's false and misleading financial statements, which were subsequently disseminated to the public. Id. at 171. We explained that, after Central Bank, courts had generally adopted either a bright line test or a substantial participation test to distinguish between primary violations of Rule 10b-5 and aiding and abetting: Some courts have held that a third party's review and approval of documents containing fraudulent statements is not actionable under Section 10(b) because one must make the material misstatement or omission in order to be a primary violator. See, e.g., In re Kendall Square Research Corporation Securities Litigation, 868 F.Supp. 26, 28 (D.Mass.1994) (accountant's `review and approval' of financial statements and prospectuses insufficient); Vosgerichian v. Commodore International, 862 F.Supp. 1371, 1378 (E.D.Pa.1994) (allegations that accountant `advised' and `guid[ed]' client in making allegedly fraudulent misrepresentations insufficient). Other courts have held that third parties may be primarily liable for statements made by others in which the defendant had significant participation. See, e.g., In re Software Toolworks, 50 F.3d 615, 628 n. 3 (9th Cir.1994) (accountant may be primarily liable based on its `significant role in drafting and editing' a letter sent by the issuer to the SEC); In re ZZZZ Best Securities Litigation, 864 F.Supp. 960, 970 (C.D.Cal. 1994) (an accounting firm that was `intricately involved' in the creation of false documents and their `resulting deception' is a primary violator of section 10(b)). Id. at 174-75 (quoting MTC Elec., 898 F.Supp. at 986) (alterations omitted). We noted that, in Shapiro, we had followed the bright line approach. Id. We therefore held that a secondary actor cannot incur primary liability under [Rule 10b-5] for a statement not attributed to that actor at the time of its dissemination. Id. Wright also made clear that attribution is necessary to satisfy the reliance element of a private damages action under Rule 10b-5. Id. (Reliance only on representations made by others cannot itself form the basis of liability. (alteration and internal quotation marks omitted)). Because the misrepresentations on which plaintiffs' claims were based were not attributed to Ernst & Young, we held that the complaint failed to state a claim under Rule 10b-5. Id. Despite Wright 's seemingly clear requirement that false statements be attributed to the defendant, our subsequent decisions may have created uncertainty or ambiguity with respect to when attribution is required. In 2001, in In re Scholastic Corp. Securities Litigation, we held that a corporate officer could be liable for misrepresentations made by the corporation, notwithstanding the fact that none of the statements at issue were specifically attributed to him. 252 F.3d at 75-76. We explained that as vice president for finance and investor relations the defendant was primarily responsible for Scholastic's communications with investors and industry analysts. He was involved in the drafting, producing, reviewing and/or disseminating of the false and misleading statements issued by Scholastic during the class period. Id. On that basis, we allowed plaintiffs' claims against the defendant to proceed. Our opinion in Scholastic did not rely on, or even cite, Wright or Central Bank and contained no discussion of the distinction between primary violations of Rule 10b-5 and aiding and abetting. Since Scholastic, district courts in our Circuit have struggled to reconcile its holding with our earlier holding in Wright. See, e.g., In re Warnaco Group, Inc. Sec. Litig., 388 F.Supp.2d 307, 314-15 n. 3 (S.D.N.Y.2005) (distinguishing Scholastic from Wright on the ground that the former involved a corporate insider rather than an outside actor), aff'd sub nom. Lattanzio, 476 F.3d 147; Global Crossing Ltd. Sec. Litig., 322 F.Supp.2d 319, 331 (S.D.N.Y.2004) (Lynch, J. ) (discussing the tension between Wright and Scholastic and noting that  Scholastic might indicate some relaxation of Wright 's [attribution] requirement). Several of our decisions have also held that corporate officers can be liable for false information provided to and disseminated by analysts, even if no statements are attributed to the corporate officers themselves. See Rombach v. Chang, 355 F.3d 164, 174 (2d Cir.2004); Novak v. Kasaks, 216 F.3d 300, 314 (2d Cir.2000). Like Scholastic, these cases did not cite Wright or Central Bank. Notwithstanding this uncertainty we recently confirmed the importance of attribution for claims against secondary actors. In 2007, in Lattanzio v. Deloitte & Touche , we considered claims that the accounting firm Deloitte & Touche had, inter alia, reviewed and approved false or misleading quarterly statements issued by a public company. 476 F.3d at 151-52. We held that to state a § 10b claim against an issuer's accountant, a plaintiff must allege a misstatement that is attributed to the accountant `at the time of its dissemination,' and cannot rely on the accountant's alleged assistance in the drafting or compilation of a filing. Id. at 153 (quoting Wright, 152 F.3d at 174). We explained that imposing liability on accountants who review and approve misleading statements would be contrary to Wright 's rejection of the substantial participation test. Id. at 155. Because the claims against Deloitte & Touche were not based on the accountant's articulated statement, we held that Rule 10b-5 liability did not extend to the defendants. Id. at 154 (Under Central Bank, Deloitte is not liable for merely assisting in the drafting and filing of the quarterly statements. (emphasis added)).