Recent Developments in Secondary Liability Under Section 10(b) and Rule 10b-5 - Central Bank Encounters the "Perfect Storm"

Article by Douglas C. Conroy & Ryan K. Roth Gallo

Introduction

In 1994, the United States Supreme Court eliminated "aiding and abetting" liability in private federal securities fraud actions. Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U. S. 164, 168 (1994) (hereinafter, Central Bank).¹ That decision also sounded the death knell for "conspiracy" allegations.² Since Central Bank, the courts have struggled with various species of line-drawing between "primary" involvement sufficient for liability under Central Bank and "secondary" involvement exempted under that decision’s reasoning. In 1995, Congress enacted the Private Securities Litigation Reform Act ("PSLRA"), in an effort to raise the bar for securities fraud plaintiffs hoping to survive motions to dismiss.