Opinion ID: 480623
Heading Depth: 1
Heading Rank: 3

Heading: anchor's lack of participation

Text: 10 Claimants also argue that Anchor's failure to adequately supervise its licensees is indirect participation in the tax shelter sales scheme. Claimants cite Hecht v. Harris, Upham & Co., 430 F.2d 1202 (9th Cir.1970), to support this contention. 11 We acknowledge indirect participation, commonly referred to as the broker-dealer rule, is a theory for establishing the culpable participation component in the context of security broker-dealers. See, e.g., Kersh, 804 Fed.2d at 550; Hecht, 430 F.2d at 1210. However, the failure to supervise does not constitute participation here. 6 12 We believe that Anchor had no duty to supervise the off-book sales in the circumstances presented here. Anchor had no knowledge that the off-book sales were being made, and it had adopted rules against sales of unapproved securities. Anchor received no income from the sales, nor were the sales made from Anchor's offices or under its logo. The sales were not made to regular customers of Anchor, or to persons depending on Anchor's participation in any way. Anchor's conduct was limited to the mere licensing of salespersons to sell securities approved by Anchor. We cannot draw from that fact alone a duty to supervise the unauthorized actions of those salespersons, or of others acting with them, that are the subject of these lawsuits. Since Anchor had no duty, it follows that Anchor's inaction cannot be characterized as participation. 7