Court Opinion

ID: 8411484
Source: CourtListenerOpinion
Date Created: 2022-11-02 18:59:02.791658+00
Date Added: 2024-06-11T16:47:51.852618
License: Public Domain

LIPEZ, Circuit Judge,
with whom TORRUELLA, Circuit Judge, joins,
dissenting in part.
The majority acknowledges that the Supreme Court 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), “did not purpose to decide the precise issue before us” — what it means to “make” a statement — but asserts that a construction of “make” that embraces the conduct alleged in this case would be at odds with Central Bank’s careful distinction between primary and secondary liability. There is no such conflict. My colleagues overstate the significance of Central Bank for the interpretive issue before us, fail to account for the underwriter’s unique statutory duty to provide investors with accurate information, and misguidedly allow concerns about excessive private litigation to influence their judgment on the scope of public enforcement by the Securities and Exchange Commission. In my view, the language of section 10(b) and Rule 10b-5(b), the underwriter’s role and duties in the securities market, and decades of case law — including Central Bank — inescapably permit the SEC to proceed against Tambone and Hussey for making false statements within the purview of Rule 10b-5(b). I therefore respectfully dissent.16
I.
The important issue before the en banc court is whether the defendants’ use of false and misleading prospectus statements can constitute the making of statements that render the defendants primarily liable under Rule 10b-5(b). The Commission asserts that, as senior executives of the primary underwriter for the Columbia Funds, Tambone and Hussey had a duty to confirm the accuracy and completeness of the prospectuses they were responsible for distributing to broker-dealers and potential investors. It further contends that, by using the prospectuses as required to perform their duties to potential investors, defendants made implied statements asserting that they had a reasonable basis to believe that the key statements in the prospectuses regarding market timing were accurate and complete. Because the defendants allegedly knew that those statements were false, or were reckless in not knowing, their implied statements were also false. The SEC argues that these direct representations of Tambone and Hussey, albeit implied, subject the defendants to primary liability under section 10(b) and Rule 10b-5(b).
The majority dismisses the SEC’s position as untenable on the basis of “the language and structure of [the] rule, the statutory framework that it implements, and the teachings of the Supreme Court.” It is the majority’s view that is untenable. It construes the Rule to exclude the long accepted understanding that underwriters “make” implied statements to investors about the accuracy and completeness of *454prospectuses they are using to induce investments. It rejects primary liability for fraudulent conduct at the heart of Rule 10b-5’s prohibitions by stretching Central Bank beyond both its text and context and using that unjustified expansion to justify its contraction of the Rule’s scope.
As I shall explain, the language of the statute and the Rule, viewed in the context of the unique role of underwriters in selling securities, supports the Commission’s allegation that Tambone and Hussey made implied statements to investors that are actionable as primary violations of Rule 10b-5(b). I begin, however, by addressing the premise at the heart of the majority’s position — its unfounded assumption that Central Bank’s “carefully drawn circumscription of the private right of action” substantially changed the landscape for securities claims under Rule 10b-5 in the very different context of an SEC enforcement action against underwriters.
A. Central Bank and Rule 10b-5
The majority argues that reading Rule 10b — 5(b) to reach the making of implied statements would be to disregard the Supreme Court’s holding in Central Bank and to effectively eliminate the boundaries between primary and secondary liability required by that decision. This contention overstates the substance of the case and, consequently, its reach.
1. What the Court Decided
The issue in Central Bank was whether the bank, the indenture trustee for bonds issued by the public Building Authority to finance improvements at a planned development in Colorado Springs, could be held liable in a private cause of action under Rule 10b-5 for aiding and abetting a primary violation of the law. Although Central Bank had become aware that the collateral for the bonds had likely become insufficient to support them, it delayed undertaking an independent review of the original appraisal. Before an independent review could be done, the Building Authority defaulted on a portion of the bonds.
The plaintiff raised claims of primary liability against four violators: the Building Authority, which issued the defaulted bonds in question, two underwriters for the bonds, and a director of the development company in charge of providing an appraisal of the bonds. The Building Authority defaulted early in the litigation and the claims against the underwriters were settled. See First Interstate Bank of Denver, N.A. v. Pring, 969 F.2d 891, 893 n. 1 (10th Cir.1992).
The Supreme Court, relying on the text of section 10(b) and Rule 10b-5, concluded that the aiding and abetting claims against Central Bank had to be dismissed because private plaintiffs may only bring claims of primary liability, not aiding and abetting liability. Nevertheless, the Court noted that “[i]n any complex securities fraud ... there are likely to be multiple violators; in this case, for example, respondents named four defendants as primary violators.”17 *455511 U.S. at 191, 114 S.Ct. 1439. Finally, the Court concluded that it is not the identity of a securities actor but his conduct that determines whether he may be liable as a primary violator:
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 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.
Id. (emphasis omitted).
2. What the Court Did Not Decide
The Court in Central Bank addressed only the question of “whether private civil liability under § 10(b) extends as well to those who do not engage in the manipulative or deceptive practice, but who aid and abet the violation.” 511 U.S. at 167, 114 S.Ct. 1439; see also id. at 176, 114 S.Ct. 1439 (“The problem, of course, is that aiding and abetting liability extends beyond persons who engage, even indirectly, in a proscribed activity; aiding and abetting liability reaches persons who do not engage in the proscribed activities at all, but who give a degree of aid to those who do.”). The issue here is whether the defendants themselves “engage[d] in the manipulative or deceptive practice,” i.e., whether the defendants’ acts are “sufficient to show that they ‘made’ the [alleged] material misstatements and omissions ... such that they can be held primarily liable.” SEC v. Wolfson, 539 F.3d 1249, 1258 (10th Cir.2008). Holding Tambone and Hussey responsible for their own false implied statements does not threaten the primary/seeondary dichotomy.
Moreover, it is critical to recognize that Central Bank analyzes the scope of section 10(b) and Rule 10b-5 in a suit brought by a private plaintiff. Although the Court focused on the text of the provisions, it also emphasized the element of reliance (which was not satisfied in that case), as well as a set of policy considerations that arise exclusively in the context of private securities litigation. See 511 U.S. at 173-178, 180, 188-89, 114 S.Ct. 1439. In this respect, Central Bank reflected the Court’s desire to limit the scope of the judicially implied private cause of action under Rule 10b-5.18 Indeed, the Court has consistently distinguished between the broad contours of the SEC’s “express statutory authority to enforce [Rule 10b-5],” Merrill Lynch, Pierce, Fenner & Smith v. Dabit, 547 U.S. 71, 79-81, 126 S.Ct. 1503, 164 L.Ed.2d 179 (2006), and the “narrow dimensions” of the implied private right of *456action, Stoneridge, 552 U.S. at 167, 128 S.Ct. 761; see also SEC v. Zandford, 585 U.S. 813, 819, 122 S.Ct. 1899, 153 L.Ed.2d 1 (2002) (noting, in a Commission action, that the Securities Exchange Act, including § 10(b), “should be ‘construed “not technically and restrictively, but flexibly to effectuate its remedial purposes” ’ ”) (citations omitted).
Thus, as the SEC argues, “[p]olicy considerations concerning private litigation can have no relevance in defining the scope of primary liability under Section 10(b) in a Commission enforcement action.” The Court’s restrictive application of Rule 10b-5 in Central Bank — a case brought by a private plaintiff — cannot sensibly be stretched beyond its logic to invalidate, in an SEC enforcement action, an interpretation of an element of Rule 10b — 5(b) on which the Supreme Court was silent.
3. Distinguishing between Primary and Secondary Violations
Although the private action context limits Central Bank’s significance for the SEC enforcement action at issue here, the Court did effect an important change in securities law by holding that aiding and abetting claims were no longer available in private actions. In its aftermath, lower courts sought to delineate the outer boundaries of primary liability, an issue the Supreme Court had not addressed. As the majority notes, our sister circuits have crafted two divergent standards to analyze the question: the “bright-line” test, associated most closely with the Second Circuit, and the broader “substantial participation” test, articulated by the Ninth Circuit. The majority observes that it is unnecessary to choose one of these paths in this case because the conduct at issue — “the use and dissemination of prospectuses created by others” — does not satisfy either test. I agree that there is no need to choose between these standards, but for a different reason: neither the bright-line nor substantial participation test is relevant here.
The substantial participation test evaluates whether one actor can be deemed to have made a statement made or created by another because of the actor’s “substantial participation” in the making or creation of that statement. In this case, the SEC alleges that Tambone and Hussey are accountable for their own implied statements, making the “substantial participation” inquiry unnecessary. See In re LDK Solar Sec. Litig., No. C0705182WHA, 2008 WL 4369987, at *8 n. 9 (N.D.Cal. Sept.24, 2008) (declining to address defendants’ claim that they had not “substantially participated” in making the fraudulent statements at issue because the court had already determined that they should be “deemed actually to have made those statements”). Similarly, the bright line test does not address what it means to “make” a statement. It simply requires that the defendant “actually make” the statement at issue, Wright v. Ernst & Young LLP, 152 F.3d 169, 175 (2d Cir.1998), and it imposes an attribution requirement that is inapplicable to SEC enforcement actions because it relates to the element of reliance that is required only in a private Rule 10b-5 action. See Wolfson, 539 F.3d at 1259-60 (observing that the attribution requirement “stems directly from the need for private litigants to prove reliance on alleged fraud to succeed on a private cause of action”).
Whether or not these tests are useful in distinguishing primary from secondary conduct, they shed no light on the issue that is before us: determining whether the defendants have “made” a statement, which unquestionably would subject them to primary liability.
*4574. The Limited Relevance of Central Bank
The Supreme Court in Central Bank focused on the crucial dichotomy between those who, regardless of their role in a securities transaction, make misleading representations themselves, and those who assist the culpable actor without personally using or employing any “manipulative or deceptive device” as prohibited by section 10(b). In this SEC enforcement action, primary liability is premised on the defendants’ having themselves impliedly stated that they had a reasonable basis to believe that the market timing disclosures in the prospectuses were truthful and complete.
Central Bank does not address the important issue in this case — whether the defendants “made” statements within the meaning of Rule 10b-5(b) — and we must look elsewhere for guidance. As I describe below, both the language of the Rule and substantial precedent on the role and status of underwriters in the distribution of securities support the SEC’s argument that Tambone’s and Hussey’s alleged actions fall within the purview of the “make a statement” requirement of Rule 10b — 5(b).
B. The Scope of Liability under Rule 10b-5(b): Making a Statement
1. Text of Section 10(b)
Although Rule 10b-5 itself offers little guidance on how to define “make,” the text of section 10(b), its authorizing statute, also must be examined. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 197, 96 S.Ct. 1875, 47 L.Ed.2d 668 (1976) (“In addressing [the question of the proper scienter requirement under section 10(b) and Rule 10b — 5], we turn first to the language of s 10(b), for ‘(t)he starting point in every case involving construction of a statute is the language itself.’ ” (quoting Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 756, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975) (Powell, J., concurring))); Pinter v. Dahl, 486 U.S. 622, 653, 108 S.Ct. 2063, 100 L.Ed.2d 658 (1988) (“The ascertainment of congressional intent with respect to the scope of liability created by a particular section of the Securities Act must rest primarily on the language of that section.”). The statutory language is particularly relevant in this case because “[t]he scope of Rule 10b-5 is coextensive with the coverage of § 10(b),” a view that has led the Supreme Court to “use § 10(b) to refer to both the statutory provision and the Rule.” Zandford, 535 U.S. at 816 n. 1, 122 S.Ct. 1899; see also Stoneridge, 552 U.S. at 157, 128 S.Ct. 761 (“Rule 10b-5 encompasses only conduct already prohibited by § 10(b).”).
In other words, the term “make a statement” in Rule 10b-519 must be read in conjunction with the text of section 10(b), which deems it “unlawful for any person ... [t]o use or employ, in connection with the purchase or sale of any security ..., any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe.” 15 U.S.C. § 78j(b) (emphasis *458added). The SEC’s allegations against appellants are stated in precisely those statutory terms. The SEC avers that defendants used and employed prospectuses containing statements prohibiting market timing practices — statements that they knew or were reckless in not knowing were false — and in so doing impliedly stated that they had a reasonable basis to believe that the market timing disclosures in the prospectuses were truthful and complete.
The majority counters that one cannot “ ‘make’ a statement when he merely uses a statement created entirely by others.” It asserts that subsection (b) of Rule 10b-5 applies to only a subset of the conduct that falls within the statute’s proscription — i.e., only the literal “making” of statements and not all “uses” of them. Id. The majority reinforces this pronouncement by pointing out that another section of the Rule, 10b-5(a), does prohibit the “employ[ment]” of any “device, scheme or artifice to defraud,” and it concludes that this difference in language proves that subsection (b) of the Rule was deliberately framed as a narrower prohibition against “making,” but not “using,” statements.
The question before us is not whether the words “use” and “make” are interchangeable, however — I agree they are not — but whether the conduct that occurred here could constitute “making” a statement within the meaning of Rule 10b-5(b). The majority’s position is that one cannot make a statement without explicitly speaking or writing the words at issue. The statutory language, however — prohibiting the “use,” inter alia, of “deceptive device[s]” — is broad enough to encompass less literal forms of “making” a statement. Indeed, it defies ordinary experience to say that a statement can only be “made” by “the physical or manual act of writing or transcribing [a] report” or speaking words. State v. O’Neil, 24 Idaho 582, 135 P. 60, 68 (1913). It is a commonplace observation that someone has “made a statement” through his or her conduct.
Unsurprisingly, a broader reading of “make” also is consistent with the dictionary definitions, which are more inclusive than the majority acknowledges and include “deliver, utter, or put forth.” See The Random House Dictionary of the English Language 1161 (2d ed.1987). Those meanings embrace the SEC’s argument that, by using the prospectuses as they did, the defendants “deliver[ed]” or “put forth” implied statements of their own attesting to the accuracy and completeness of the prospectuses. In ease law, as well as common parlance, this is not an unprecedented interpretation of the word “make.” In Reass v. United States, 99 F.2d 752 (4th Cir.1938), for example, the court held that “making” a false statement for purposes of a federal mortgage fraud statute meant communicating it and not merely composing it. Id. at 755. Although the majority correctly points out the very different context in Reass, the fact remains that the court did not confine “making a statement” to the literal meaning on which the majority insists. See also, e.g., O’Neil, 135 P. at 63.
To be sure, Rule 10b-5(b) contemplates some range of conduct narrower than the statute’s all-encompassing “use or employ.” But that fact does not mean that particular uses of statements by particular players in the sale of securities cannot constitute the “making” of implied statements. The Rule thus does not require Tambone and Hussey to have explicitly spoken or written the false statement at issue here, i.e., that “I have a reasonable basis for believing that the market timing disclosures in the prospectuses are truthful and complete.” Rather, given the statutory duties imposed upon them as under*459writers, see infra, that representation was implicit in the defendants’ conduct in using the prospectuses to induce individuals to invest in Columbia Funds.
As the SEC explains in its en banc brief, this understanding of what it means to “make” a statement is necessary to fulfill the objective of Congress and the Commission to punish “any untrue statement of a material fact” made with knowledge or reckless disregard for its truth. See Rule 10b-5(b). An underwriter could well know that representations in a prospectus are false even when the individual who actually wrote the words was unaware of the inaccuracies. In those circumstances, an underwriter who knowingly gives investors a prospectus containing falsehoods could not be held liable in an SEC enforcement action for aiding and abetting the unwitting drafter, who did not himself commit fraud. If such an underwriter could not be held responsible as a primary offender, the underwriter would, in the SEC’s words, “be free from any liability under Section 10(b) whatsoever.”20 It takes no stretch of the language of Rule 10b-5(b) to view such an underwriter as having attested to the accuracy of the prospectus contents, i.e., to have knowingly “made” an implied— false — statement to investors that the prospectus accurately describes the fund’s risks. See Hanly v. SEC, 415 F.2d 589, 597 (2d Cir.1969) (“By [an underwriter’s] recommendation he implies that a reasonable investigation has been made and that his recommendation rests on the conclusions based on such investigation.”).
2. The Duties of an Underwriter
In assessing whether a defendant has committed a primary violation of the securities laws, courts have examined the defendant’s role in the securities market in addition to the specific conduct alleged in the complaint. These decisions indicate that a defendant’s general responsibilities and statutory duties with respect to the sale and distribution of securities inform the legal significance of specific conduct under Rule 10b-5(b). See, e.g., In re Scholastic Corp. Sec. Litig., 252 F.3d 63, 77 (2d Cir.2001) (analyzing a corporate executive’s liability for “making” misleading statements in light of his duties and responsibilities); SEC v. KPMG LLP, 412 F.Supp.2d 349, 376-77 (S.D.N.Y.2006) (holding that three engagement partners of an auditing firm who possessed the “ultimate authority to determine whether an audit opinion should be issued” could be primarily liable under the securities laws for misstatements contained in the audit opinion letters, although a fourth defendant, who only acted as a concurring review partner, could not be held primarily liable, as his responsibilities were “not the equivalent of the audit engagement partner’s responsibilities”). Indeed, the Second Circuit has made the particularly relevant observation that “[s]ilence where there is a duty to disclose can constitute a false or misleading statement within the meaning of § 10(b) and Rule 10b-5.” Wright, 152 F.3d at 177 (emphasis added). Thus, by virtue of his role in the securities market and his statutory duties, a defendant may make an implied statement without actually uttering the words in question.
Underwriters play an essential role in the sale and distribution of mutual funds to the investing public, which occurs either directly or through other broker-dealers. The text and statutory history of the Securities Act of 1933, and specifically the statute’s treatment of underwriters in sections *4601121 and 12,22 highlight the unique position they occupy in the securities industry. As the Southern District of New York has observed in the context of evaluating several securities claims:
[I]n enacting Section 11, “Congress recognized that underwriters occupied a unique position that enabled them to discover and compel disclosure of essential facts about the offering. Congress believed that subjecting underwriters to the liability provisions would provide the necessary incentive to ensure their careful investigation of the offering.”
In re WorldCom, Inc. Sec. Litig., 346 F.Supp.2d 628, 662 (S.D.N.Y.2004) (quoting The Regulation of Securities Offerings, Securities Act Release No. 7606A, 63 Fed. Reg. 67174, 67230 (Dec. 4, 1998), 1998 WL 833389). Although underwriters are not insurers for offerings, id., Congress has mandated that they “exercise diligence of a type commensurate with the confidence, both as to integrity and competence, that is placed in [them].” H.R. Conf. Rep. No. 73-152, 1933 WL 984, at *26 (1933). The duty of an underwriter to conduct a reasonable investigation was explained by the SEC more than forty years ago as follows:
“By associating himself with a proposed offering [an underwriter] impliedly represents that he has made such an investigation in accordance with professional standards. Investors properly rely on this added protection which has a direct bearing on their appraisal of the reliability of the representations in the prospectus. The underwriter who does not make a reasonable investigation is derelict in his responsibilities to deal fairly with the investigating public.”
In re WorldCom, 346 F.Supp.2d at 662-63 (insertions in original) (quoting In re the Richmond Corp., Exchange Act Release No. 4585, 41 SEC Docket 398 [1961-1964 Transfer Binder], Fed. L. Sec. Rep. (CCB) 76,904, 1963 WL 63647, at *7 (Feb. 27, 1963)); see also Municipal Securities Disclosure, Exchange Act Release No. 26, 100, 41 SEC Docket 1131, 1988 WL 999989, at *20 (Sept. 22, 1988) (observing that the underwriter “occupies a vital position in an offering” and that, by its participation in a sale of securities, the underwriter makes a recommendation that “implies that the underwriter has a reasonable basis for belief in the truthfulness and completeness of the key representations made in any disclosure documents used in the offerings”).23
The case law addressing the duties of underwriters buttresses the SEC’s analysis and extends it beyond the traditional context of sections 11 and 12 of the Securities Act, which specifically concern an underwriter’s obligation to ensure the accuracy of registration statements and prospectuses. Courts have repeatedly applied section 10(b) to underwriters. See, e.g., SEC v. Dain Rauscher, Inc., 254 F.3d 852, 858 (9th Cir.2001) (finding genuine issue of material fact as to whether underwriter violated Rule 10b-5 by not complying with its “duty to make an investigation *461that would provide him with a reasonable basis for a belief that the key representations in the statements provided to the investors were truthful and complete”); Flecker v. Hollywood Entm’t Corp., 1997 WL 269488, at *9 (D.Or. Feb.12, 1997) (finding triable issue of section 10(b) primary liability against underwriter for allegedly false statements that inflated stock prices); In re MTC Elec. Techs. S’holder Litig., 993 F.Supp. 160, 162 (E.D.N.Y.1997) (applying the standard of primary liability to underwriters in the context of private allegations of Rule 10b-5 violations); Phillips v. Kidder, Peabody & Co., 933 F.Supp. 303, 315-16 (S.D.N.Y.1996) (same); In re U.S.A. Classic Sec. Litig., No. 93 Civ. 6667(JSM), 1995 WL 363841, at *5 (S.D.N.Y. June 19, 1995) (finding that an underwriter’s participation in the issuance of a prospectus was sufficient to state a claim of primary liability under Rule 10b—5); In re Software Toolworks, Inc. Sec. Litig., 50 F.3d 615, 629 (9th Cir.1994) (finding disputed issues of material fact as to whether underwriters’ participation in drafting an allegedly misleading letter to the SEC violated section 10(b)); In re Enron Corp. Sec., Derivative & ERISA Litig., 235 F.Supp.2d 549, 612 (S.D.Tex.2002) (finding, based on case law highlighting an underwriter’s duty to investigate an issuer and the securities it offers to investors, that an underwriter of a public offering could be held liable under section 10(b) and section 11 of the Securities Act “for any material misstatements or omissions in the registration statement made with scienter”).
These precedents reflect the unique position of underwriters as securities insiders whose role is “that of a trail guide — not a mere hiking companion,” and who are relied upon by investors for their “reputation, integrity, independence, and expertise.” Dolphin and Bradbury, Inc. v. SEC, 512 F.3d 634, 640-41 (D.C.Cir.2008) (“Although other broker-dealers may have the same responsibilities in certain contexts, underwriters have a ‘heightened obligation’ to ensure adequate disclosure.”); see also Chris-Craft Indus., Inc. v. Piper Aircraft Corp. 480 F.2d 341, 370 (2d Cir.1973) (“No greater reliance in our self-regulatory system is placed on any single participant in the issuance of securities than upon the underwriter.”). Underwriters have access to information of substantive interest and consequence to investors, and a concomitant duty to investigate and confirm the accuracy of the prospectuses and other fund materials that they distribute. Chris-Craft, 480 F.2d at 370; see also Sanders v. John Nuveen & Co., 524 F.2d 1064, 1071 (7th Cir.1975) (“Although the underwriter cannot be a guarantor of the soundness of any issue, he may not give it his implied stamp of approval without having a reasonable basis for concluding that the issue is sound.”); Walker v. SEC, 383 F.2d 344, 345 (2d Cir.1967) (“The Commission is justified in holding a securities salesman chargeable with knowledge of the contents of sales literature.”).
The underwriter’s statutory duty to review and confirm the accuracy of the material in the documentation that it distributes generates the implied statement to investors that the underwriter has a reasonable basis to believe that the information contained in the prospectus it uses to offer or sell securities is truthful and complete. See Sanders, 524 F.2d at 1070, 1073 (“[T]he relationship between the underwriter and its customers implicitly involves a favorable recommendation of the issued security.... [A]s an underwriter selling the ... notes, Nuveen made an implied representation that it had reasonable grounds for belief that these notes would *462be paid at maturity.” (footnote omitted));24 see also Chris-Craft, 480 F.2d at 370. Thus, contrary to the majority’s assertion, this is not a situation in which the liability alleged is based “merely” on the use of “a statement created entirely by others.” In this limited context, where the duties of underwriters to potential investors are prescribed by statute, the knowing or reckless use of a prospectus containing false statements involves the underwriter’s own implied statement falsely affirming the accuracy of the prospectus content.
The majority attempts to discredit some of this inconvenient precedent because it pre-dates Central Bank. The majority’s treatment of Chris-Craft, which strongly supports the SEC’s position, is illustrative. The Second Circuit held that an underwriter “makes” a statement under section 14(e) of the Exchange Act when constructively representing that registration materials are accurate and complete.25 480 F.2d at 370 (noting that, although an underwriter does not “in a literal sense” make statements to potential investors, we do not read § 14(e) so “narrowly”). The majority disregards Chris-Craft because it preceded Central Bank by more than twenty years, observing that the Second Circuit had no reason to distinguish between primary and secondary liability at that time. As the SEC points out, however, and our discussion above confirms, Central Bank did not diminish the statutory duties of underwriters or otherwise affect the courts’ identification of the duties owed by underwriters to the investing public.
Hence, Chris-Craft and similar cases may not be cast aside as no longer relevant. The majority errs in its dismissal of precedent, fully consistent with Central Bank, indicating that implied statements made by underwriters — a unique class of securities professionals — may fall within the scope of Rule 10b-5.
II.
My colleagues fear that including implied statements within the purview of Rule 10b-5(b) would trigger a flood of vexatious private lawsuits against a wide spectrum of participants in the securities industry. I cannot deny that private plaintiffs would try to push the SEC’s implied statement position beyond its context in this case. That is a predictable and familiar phenomenon in our legal system. It then becomes the responsibility of courts to de*463termine which attempts to expand the law are meritorious and which are not. Inescapably, this method of developing the law imposes costs on defendants who ultimately prevail. These inevitable costs should not deter us, however, from reaching the result required by the applicable law in the case before us. Specifically, they should not lead us here to circumscribe the authority of the SEC to meet its responsibility to the public to prevent fraud in the securities industry.
In addition, the majority’s fears discount too readily the particular context of this case. As I have described, underwriters play a unique role in the securities industry, and they have responsibilities and a statutory duty not shared by every securities professional. Indeed, the cases cited in the concurrence for the proposition that the implied representation theory “has been regularly rejected by the circuits” all involve secondary players, such as accountants, auditors and lawyers, who typically lack the “trail guide” relationship with the investing public that is the hallmark of the underwriter’s role.26
Tambone’s and Hussey’s implied statements about their belief in the accuracy of the prospectuses arise from their special status, enforced by statute, which is both widely acknowledged and of long duration. The majority, quoting Chiarella v. United States, 445 U.S. 222, 228, 100 S.Ct. 1108, 63 L.Ed.2d 348 (1980), acknowledges that a duty to disclose information in the securities setting may arise from “ ‘a fiduciary or other similar relation of trust and confidence’ between the parties” that exists outside the obligations imposed by Rule 10b-5. See SEC v. Cochran, 214 F.3d 1261, 1265 (10th Cir.2000) (noting that “a duty to disclose under § 10(b) may be present if either a federal statute (other than § 10(b) itself) or a state statutory or common law recognizes a fiduciary or similar relationship of trust and confidence”). Federal law imposes such a duty on underwriters,27 and that duty provides the context in which an underwriter’s conduct may generate an implied statement attesting to the accuracy of a prospectus the underwriter is using to sell securities. Plaintiffs seeking to expand the SEC’s implied statement approach beyond underwriters will face the challenge of identifying an equivalent duty on the part of other actors in the securities industry.
Moreover, private litigants face multiple burdens in pleading securities claims. Not only must they meet the standard requirement that allegations of fraud be pleaded with particularity, see Fed.R.Civ.P. 9(b), but — unlike the SEC — they also must prove reliance on the alleged misrepresentations, economic loss, and loss causation, see, e.g., Stoneridge, 552 U.S. at 157, 128 S.Ct. 761. The reliance requirement, in *464particular, weakens my colleagues’ concern that private litigants will be able to bring impermissible aiding and abetting claims in the guise of primary claims. With significant barriers already in place to protect against excessive securities litigation by private plaintiffs, the way to protect against overreaching by private plaintiffs is to strictly enforce those requirements— not to deny the SEC the full scope of its enforcement authority.
III.
The underwriter’s special duty to investors is anchored in statutes and administrative guidance and confirmed by case law whose relevant wisdom was unaffected by the Supreme Court’s decision in Central Bank. In light of that duty, an underwriter who uses a prospectus in a securities transaction in the manner alleged here impliedly states that he has reason to believe the contents of the prospectus are accurate. If the underwriter knows, or is reckless in not knowing, that the statements contained within the prospectus are in fact false, the underwriter’s implied statement is likewise false. An underwriter who makes such a statement has violated Rule 10b-5(b).
The SEC in this case alleges that Tarn-bone and Hussey made such statements to investors when they used the prospectuses containing false statements about timing practices to sell the Columbia Funds. They allegedly knew, or were reckless in not knowing, that those statements were false. These allegations were stated with sufficient particularity to meet the requirements of Fed.R.Civ.P. 12(b)(6), in eonjunction with Rule 9(b).28 Defendants’ motions to dismiss the primary liability claims under section 10(b) and Rule 10b — 5(b) should therefore have been denied.
Hence, I would reverse the dismissal of the SEC’s claims under section 10(b) and Rule 10b-5(b) and remand to the district court for further proceedings on those claims, as well as on the section 17(a)(2) and aiding and abetting claims.

. I join the majority’s decision to reinstate the portions of the panel opinion addressing the SEC’s section 17(a)(2) and aiding and abetting claims and the portions of the panel judgment reversing those claims.

. Tambone and Hussey argue, inter alia, that the Commission’s claims of primary liability should be rejected because of the SEC's own admission that Columbia Advisors, not defendants, "remained primarily responsible for all representations made” in the fund prospectuses. However, this quotation from Central Bank illustrates the Supreme Court's recognition that a securities fraud will likely involve multiple violators, thereby suggesting that individuals with different responsibilities could be primarily liable for the same misstatement. See 511 U.S. at 191, 114 S.Ct. 1439. Therefore, the primary liability of Columbia Advisors does not preclude the primary liability of Tambone and Hussey for their own use of the false and misleading statements contained in those prospectuses. The Supreme Court recently confirmed this principle in a private lawsuit by indicating that defendants Charter *455Communications, Scientific-Atlanta, Inc., and Motorola, Inc., had all engaged in the fraudulent conduct at issue. See Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 158-61, 128 S.Ct. 761, 169 L.Ed.2d 627 (2008). Although the Court’s statement in Central Bank referred to Rule 10b-5(b), addressing material statements and omissions, and its comment in Stoneridge applied to 1 Ob-5 (a) or (c), addressing other types of deceptive conduct, the scope of primary liability in each subsection is governed by the language of section 10(b) of the Exchange Act. Therefore, the Supreme Court's recent confirmation that multiple individuals may be primarily liable under Rule 1 Ob-5 (a) or (c) is applicable to its interpretation of Rule 10b-5(b).

. Cf. United States v. O'Hagan, 521 U.S. 642, 664, 117 S.Ct. 2199, 138 L.Ed.2d 724 (1997) (noting that Central Bank "concerned only private civil litigation under § 10(b) and Rule 10b-5, not criminal liability[,]” and therefore that its "reference to purchasers or sellers of securities must be read in light of a longstanding limitation on private § 10(b) suits”).

. The Rule states:
It shall be unlawful for any person, directly or indirectly ...
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c)To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.
17 C.F.R. § 240.10b-5.

. Although deceptive conduct in the sale of securities could trigger liability under section 17(a), that provision does not cover purchases and therefore would not always offer an alternative vehicle for SEC enforcement.

. Section 11 of the Securities Act “prohibits false statements or omissions of material fact in registration statements” and “identifies the various categories of defendants subject to liability for a violation,” including underwriters. Central Bank, 511 U.S. at 179, 114 S.Ct. 1439; see also 15 U.S.C. § 77k(a)(5).

. Section 12 “prohibits the sale of unregistered, nonexempt securities as well as the sale of securities by means of a material misstatement or omission; and it limits liability to those who offer or sell the security.” Central Bank, 511 U.S. at 179, 114 S.Ct. 1439; see also 15 U.S.C. § 771(a).

.The SEC specifically observes in this Release that the underwriters' "obligation to have a reasonable basis for belief in the accuracy of statements directly made concerning the offering is underscored when a broker-dealer underwrites securities.” Id. at *21.

. The judgment in Sanders was vacated and remanded for further consideration in light of the Supreme Court’s decision in Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976), which held that scienter is an element of a private cause of action under section 10(b) and Rule 10b-5. See John Nuveen & Co. v. Sanders, 425 U.S. 929, 96 S.Ct. 1659, 48 L.Ed.2d 172 (1976); Hochfelder, 425 U.S. at 193, 96 S.Ct. 1375. The Seventh Circuit on remand held that liability could no longer rest on Rule 10b-5 because the defendant's conduct had been "mistaken but honest in belief.” 554 F.2d at 792. As the majority points out, when the Seventh Circuit subsequently re-heard the case, it referred to explicit statements made by the defendant underwriter. See 619 F.2d 1222, 1224 (7th Cir.1980). In its earlier ruling, however, the court had noted that "the evidence does not indicate that all members of the class relied on express recommendations,” 524 F.2d at 1069, and it therefore based liability on the underwriter's implied statements.

. Section 14(e) provides, in relevant part: "It shall be unlawful for any person to make any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading, ... in connection with any tender offer.” 15 U.S.C. § 78n(e). That language is in pertinent respects identical to the language in Rule 10b — 5 (b) that is at issue here.

. See Lattanzio v. Deloitte & Touche LLP, 476 F.3d 147, 155 (2d Cir.2007) (accountant); Fidel v. Farley, 392 F.3d 220, 235 (6th Cir.2004) (auditor), overruled on other grounds by Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 324, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007); Ziemba v. Cascade Int’l, Inc., 256 F.3d 1194, 1205-06 (11th Cir.2001) (accounting and law firms); Anixter v. Home-Stake Prod. Co., 77 F.3d 1215, 1226-27 (10th Cir.1996) (accountant).

. The majority quotes Fortson v. Winstead, McGuire, Sechrest & Minick, 961 F.2d 469 (4th Cir. 1992), for the proposition that " 'the duty to disclose material facts arises only when there is some basis outside the securities laws, such as state law, for finding a fiduciary or other confidential relationship.’ " Id. at 472. Several circuits have adopted the proposition that federal securities law cannot establish the requisite duty. Id. That exclusion would be inappropriate for underwriters, whose unique duty to investors is deeply embedded in federal law independent of section 10(b) and Rule 10b-5. See supra Section B.2.

. The allegations in the SEC's complaint are described in detail in the panel decision, SEC v. Tambone, 550 F.3d 106, 141-143 (1st Cir.2008), and need not be repeated here. It suffices to say that the SEC meticulously identified the alleged misrepresentations, the defendants' roles in overseeing the distribution of fund prospectuses in connection with the sale of Columbia Funds, and the basis for their knowledge or recklessness in not knowing that prohibited market timing arrangements existed (rendering the prospectus statements false).