Appellate Court Expands Scope Of Liability In SEC Enforcement Actions

In a recent 2-1 decision in SEC v. Tambone, the federal appeals court sitting in Boston dramatically expanded the scope of liability for securities fraud by holding that a defendant's conduct may constitute an implied fraudulent statement even though the defendant did not actually make any false or misleading statements. In a separate opinion, Judge Bruce M. Seyla dissented from the court's interpretation of Rule 10b-5, writing that the majority's view constituted "an unwarranted usurpation of legislative and administrative authority" and improperly blurred the line between primary liability and aiding and abetting claims.

On December 3, 2008, the United States Court of Appeals for the First Circuit issued a lengthy decision in a Securities and Exchange Commission enforcement action arising out of the market timing scandal. The Commission alleged that two executives of a mutual fund distributor violated the federal securities antifraud provisions by distributing fund