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Partner Peter Haveles and Counsel Jonathan Green Weigh in on the New Scope of Securities Fra…

September 11, 2012

Partner Peter Haveles and Counsel Jonathan Green Weigh in on the New Scope of Securities Fraud in Compliance Week

As appeared in Compliance Week’s “Court Expands Scope of Third-Party Liability for Securities Fraud”

Compliance Week recently reported on a Court of Appeals ruling that makes it easier for the Securities and Exchange Commission to charge executives with acting as accomplices to securities fraud. New York’s Second Circuit Court of Appeals clarified last month in SEC v. Apuzzo the standard for aiding and abetting liability. The ruling concerns Joseph Apuzzo, chief financial officer of mining and engineering supplier Terex Corp., who helped a customer misrepresent the customer’s financial records. While the district court held that the SEC had failed to properly allege that Apuzzo proximately caused the customer’s misstatements, the Court of Appeals found that proximate causation was not the relevant inquiry, and the SEC did allege adequately that Apuzzo provided “substantial assistance” to the fraud that was being committed.

This ruling sets the definition of what constitutes aiding and abetting in securities fraud. According to Kaye Scholer securities & derivatives litigator Peter Haveles, “There has been lots of ambiguity about what the standard is for aiding and abetting.” Haveles continues, “At least for the Second Circuit, this provides not only a very clear test, but a very simple test for the SEC.”

Jonathan Green, a member of Kaye Scholer’s White-Collar Defense & Internal Investigations practice, warns executives who might find themselves in situations where they could be implicated in a potentially unlawful act to “take care not to fall into the same trap as Apuzzo did by thinking, ‘What business is it of mine if they record revenue that they shouldn't have and misrepresent their financial statements to investors?’”

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