Opinion ID: 757736
Heading Depth: 2
Heading Rank: 2

Heading: Primary Violator or Aider and Abettor

Text: 35 It is plain to us that the complaint alleged Romano to be a primary violator. Romano participated in the fraudulent scheme, First Jersey Secs., 101 F.3d at 1471, i.e., the manipulation of USE's stock, by effecting the very buy and sell orders that artificially manipulated USE's stock price upward. Indeed, if the trader who executes manipulative buy and sell orders is not a primary violator, it is difficult to imagine who would remain liable after Central Bank. 36 In Central Bank, holders of defaulted bonds sued the issuer and others alleging primary liability under Rule 10b-5 and also sued the indenture trustee on the theory that the trustee aided and abetted the other defendants' violations by recklessly ignoring its oversight duties. The Supreme Court held that § 10(b) prohibits only the making of a material misstatement (or omission) or the commission of a manipulative act, 511 U.S. at 177, 114 S.Ct. 1439, and it dismissed the claim against the trustee, who had done neither. Similarly, Shapiro v. Cantor, 123 F.3d 717 (2d Cir.1997), involved an accounting firm that allegedly aided and abetted a fraudulent omission by preparing [ ] financial projections that were later included in the principal defendants' offering memoranda, which in turn failed to disclose that one of the principals was a convicted felon. Id. at 721. We held in Shapiro that the accounting firm was not primarily liable, because there exist[ed] no allegation that [its] projections misrepresented any financial fact and the accounting firm in that case had no legal duty to disclose the information omitted from the offering memoranda. Id. at 721-22. 37 Romano, in contrast, did not simply fail to disclose information when there was no duty to do so, as in Shapiro, or fail to prevent another party from engaging in a fraudulent act, as in Central Bank, when there existed no duty to prevent such. Rather, Romano himself commi[tted] a manipulative act, Central Bank, 511 U.S. at 177, 114 S.Ct. 1439, by effecting the very buy and sell orders that manipulated USE's stock upward. 38 Finally, it is of no relevance that D'Onofrio, not Romano, masterminded the USE stock manipulation and that D'Onofrio's group directed Romano to effect the illegal trades. 39 The absence of § 10(b) aiding and abetting liability does not mean that secondary actors in the securities markets are always free from liability under the securities Acts. Any person or entity, including a lawyer, accountant, or bank, who employs a manipulative device ... may be liable as a primary violator under 10b-5.... In any complex securities fraud, moreover, there are likely to be multiple violators.... 40 Central Bank, 511 U.S. at 191, 114 S.Ct. 1439. Like lawyers, accountants, and banks who engage in fraudulent or deceptive practices at their clients' direction, Romano is a primary violator despite the fact that someone else directed the market manipulation scheme. The Supreme Court in Central Bank never intended to restrict § 10(b) liability to supervisors or directors of securities fraud schemes while excluding from liability subordinates who also violated the securities laws. In sum, the complaint alleges that Romano is primarily liable under § 10(b) and Rule 10b-5 for the manipulation of USE stock. 41 Finally, in concluding, we make a few observations. First, in granting Romano's motion to dismiss, the district court dismissed the amended complaint's third claim for relief--that Romano violated § 10(b) ... and Rule 10b-5. U.S. Envtl., 929 F.Supp. at 171. Although the amended complaint's third claim was brought under Section 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q(a) (s 17(a)), as well as under § 10(b) and Rule 10b-5, neither the district court's opinion nor its certification order mention § 17(a). We also note that neither the SEC nor Romano has addressed § 17(a) on appeal. We conclude, therefore, that the district court did not dismiss the SEC's third claim under § 17(a), and we do not address § 17(a) in this opinion. 42 Second, we note that, although Romano suggests that the complaint fails to allege Romano's fraud with particularity as required by Fed.R.Civ.P. 9(b), see Appellee's Br. at 6-7, the district court explicitly declined to rule upon that issue, see U.S. Envtl., 929 F.Supp. at 171, and did not certify that issue for appeal. We therefore are without jurisdiction to consider the point. 43 Third and last, we note that The Private Securities Litigation Reform Act of 1995, Pub.L. No. 104-67 (Reform Act), enacted after Central Bank, provides that, in SEC actions, any person that knowingly provides substantial assistance to another person in violation of a provision of [15 U.S.C. Chapter 2B, which includes § 10(b) ], or of any rule or regulation issued under this chapter [including Rule 10b-5], shall be deemed to be in violation of such provision to the same extent as the person to whom such assistance is provided. 15 U.S.C. § 78t(f). Thus, unlike private plaintiffs, the SEC now has authority to assert aiding and abetting claims under § 10(b). See id.; SEC v. Fehn, 97 F.3d 1276, 1283 (9th Cir.1996), cert. denied, --- U.S. ----, 118 S.Ct. 59, 139 L.Ed.2d 22 (1997). It remains unclear, however, whether the SEC could bring aiding/abetting claims in cases based on conduct occurring prior to the enactment of the Reform Act. See id. at 1286-87 (applying Reform Act retroactively under particular circumstances of that case). Because the SEC did not make this argument before the district court or on appeal, however, we do not address this alternate ground for vacating the district court's dismissal. See Fed. R.App. P. 28(a)(6); LoSacco v. City of Middletown, 71 F.3d 88, 92 (2d Cir.1995) (arguments not addressed in appellate brief are waived).