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The First Circuit’s Flannery Decision Leaves Unresolved the Validity of the SEC’s…

February 16, 2016

The First Circuit’s Flannery Decision Leaves Unresolved the Validity of the SEC’s Attempt to Expand the Reach of Sections 10(b) AND 17(a)

 

Originally appeared in Bloomberg BNA's Securities Regulation & Law Report on February 15, 2016. 

—by H. Peter Haveles, Jr.

There has been genuine delight among the securities defense bar with the First Circuit's decision in Flannery v. SEC1and its reversal of the decision of the Securities and Exchange Commission (the “SEC”) on the ground that there was no factual basis to hold two employees of State Street Global Advisors liable for a violation of both the Securities Act of 1933 (the “1933 Act”) and the Securities Exchange Act of 1934 (the “1934 Act”). Notwithstanding that positive result, the First Circuit failed to address the more troubling aspect of the SEC's December 2014 decision vacating the finding of the administrative law judge and imposing liability on the two individuals.

Specifically, in its decision, the SEC took an overbroad and expansive view of Section 10(b) of the 1934 Act and Section 17 of the 1933 Act. Yet, when rejecting the SEC's factual findings, the First Circuit did not address the SEC's holdings regarding those two provisions. So, while the First Circuit's decision underscores the burden of proof that the SEC bears in an in-house enforcement proceeding, it does not prevent the SEC (until checked by another appellate court) from disregarding contrary judicial holdings and asserting an overbroad interpretation of the anti-fraud provisions in both the 1933 and 1934 Acts.

As is well known, over the last several years, the United States Supreme Court has meaningfully circumscribed the scope of liability under the 1934 Act, rejecting the broad interpretation that the SEC had given to the antifraud provisions. The most recent decision among that group is Janus Capital Group v. First Derivative Traders2 in which the Supreme Court restricted the definition of who is a maker of a false statement under Section 10(b) of the 1934 Act.

Not surprisingly, the SEC has chafed at the limitations put on its enforcement authority, and has attempted to construe the decisions of the Supreme Court and various Courts of Appeal narrowly. The SEC's decision in In re Flannery 3 is the most forceful attempt at achieving that goal. In its Flannery decision, the SEC adopted a sweeping view of both Section 10(b) of the 1934 Act and Section 17(a) of the 1933 Act.

The two respondents, John Flannery and James Hopkins, appealed from that decision to the First Circuit, which granted review and vacated the SEC's order. The First Circuit rejected the SEC's attempt to follow its own path and to impose liability and sanctions, contrary to the findings and conclusions of its in-house administrative law judge. Specifically, the court subjected the SEC's ruling to a searching review of the record and rejected the flimsy basis for the SEC's findings of materiality and scienter. The court discussed the legal standards for materiality and scienter, but not the SEC's rulings regarding the scope of Section 10(b) of the 1934 Act or Section 17(a) of the 1933 Act.

Background

The two respondents, James Hopkins and John Flannery, worked for State Street Global Advisors (“State Street”). Among Hopkins' job responsibilities as a “product engineer” was communicating directly with investors in one of State Street's bond funds. Flannery was State Street's fixed income chief investment officer, and participated in the preparation and signing of letters to investors of that fund.

The SEC brought charges against each of them under Section 10(b) and Section 17(a) with respect to communications made in connection with the offer and sale of State Street's Limited Duration Bond Fund. In October 2011, after an 11-day hearing, the administrative law judge dismissed all of the claims against each individual. The administrative law judge specifically held that Supreme Court's ruling in Janus applied to each of the subparagraphs in Section 17(a) and Rule 10b-5 when the alleged violations were based solely on misstatements. 4 Based on the evidence and its application of Janus, the administrative law judge held that the individuals were responsible for only one of the alleged misrepresentations. 5 And as to that statement, the administrative law judge found that the statement was not a material misrepresentation. 6 Accordingly, the administrative law judge dismissed all of the charges. 7

The SEC's Decision

On review, the SEC overruled the administrative law judge's rulings in part and imposed liability. The SEC wrote, in effect, its own de novo opinion with respect to the alleged misrepresentations, and held that each individual violated Section 17(a) and Section 10(b).

The SEC rejected the administrative law judge's holding that Janus applied to claims of misrepresentations under all of the subparagraphs of Section 17(a) and Rule 10b-5. The SEC also rejected several of the administrative law judge's factual findings and held that certain statements were material misrepresentations, either made with scienter or as a result of negligence.

With respect to Janus, even though the alleged misconduct concerned only misrepresentations, the SEC specifically limited the Janus ruling to Rule 10b-5(b), and held that Janus did not apply to subparagraphs (a) and (c) of Rule 10b-5 because neither of those paragraphs contain the word “make,” as does subparagraph (b). 8 Similarly, the SEC held that Janus does not apply to any of the subparagraphs of Section 17(a), even with respect to subparagraph (2) (which courts have held prohibits the same conduct and activity as subparagraph (b) of Rule 10b-5 does). 9

The SEC's interpretation of the elements of subparagraphs (a) and (c) of Rule 10b-5 has pushed the breadth of those two subparagraphs to the extreme. The SEC held that those two subparagraphs also embrace the making of misstatements, thereby permitting the SEC to charge an individual for violation of one of those two subparagraphs instead of subparagraph (b) and to evade the “maker” restriction set forth in the statute that the Supreme Court enforced in Janus. The SEC relied on a truncated and misleading quotation of snippets of the Supreme Court's analysis in Janus to justify its rejection of rulings of the federal courts to the contrary. 10 Further, according to the SEC, the subparagraphs of Rule 10b-5 are to be read flexibly to effectuate the 1934 Act's remedial purposes. 11

The SEC further concluded that it can impose liability under subparagraph (a) or (c) bound solely on a misrepresentation, and that such a result is not inconsistent with the Supreme Court's ruling in Central Bank of Denver, N.A. v. First Interstate Bank of Denver12 The SEC asserted that the various federal courts that have readCentral Bank to the contrary have gotten it wrong and that the SEC, in its wisdom, has gotten it right. 13

With respect to Section 17(a) of the 1933 Act, the SEC concluded that Section 17(a) differs from Section 10(b) of the 1934 Act and Rule 10b-5. 14 The SEC predicated its analysis on the absence of the words “manipulative or deceptive” from Section 17(a). 15 The SEC held that subparagraph (1) of Section 17(a) proscribes a single act of making or drafting a material misstatement to investors, and it acknowledged that subparagraph (3) required more than one misstatement, i.e., a course of statements. 16 Again, the SEC overreached to find snippets of earlier Supreme Court analysis to justify this holding, relying primarily on a cursory discussion of the Supreme Court's decision regarding Section 17(a) in United States v. Naftalin17

The First Circuit Decision

The First Circuit is thorough in its rejection of the SEC's determination. However, the First Circuit limits itself to addressing the standard of review for the SEC's decision and consequently the issues of materiality and scienter. Although the First Circuit's rulings regarding each of those issues establish clear hurdles for the SEC to overcome, the First Circuit's decision did not address the SEC's more problematic rulings.

The First Circuit was not prepared to defer to the SEC's factual findings, and rejected the Division of Enforcement's arguments that the court could not look behind them. The court took the stricter view of the standard of review. Because the SEC had disregarded the findings of the administrative law judge, including as to credibility, the First Circuit held:

When the Commission and the ALJ “reach different conclusions … [the ALJ]’s findings and written decisions are simply part of the record that the reviewing court must consider in determining whether the [SEC]’s decision is supported by substantial evidence.” Because “evidence supporting a conclusion may be less substantial when an impartial, experienced examiner who has observed the witnesses and lived with the case has drawn conclusions different from [the Commission]’s than when the [ALJ] has reached the same conclusion,” “where the [Commission] has reached a conclusion opposite of that of the ALJ, our review is slightly less deferential than it would be otherwise.” 18

With respect to the substantive issues of materiality and scienter, the First Circuit observed that they are “connected,” stating:

If it is questionable whether a fact is material or its materiality is marginal, that tends to undercut the argument that defendants acted with the requisite intent or extreme recklessness in not disclosing the fact. 19

The First Circuit rejected the SEC's attempt to examine the statement in isolation, divorced from the entire document. The First Circuit held that “[c]ontext makes a difference” and that context had to be examined through the eyes of the typical investor of the funds in question. 20 However, in making that observation, the First Circuit specifically declined to rule whether the level of sophistication of the investors would have made any misrepresentation immaterial. 21

The First Circuit also took a correspondingly strict view of scienter. The court observed that the issue of scienter is “intimately bound up with whether Defendants either actually knew or recklessly ignored that the [fact] was material and nevertheless failed to disclose it.” 22

The First Circuit then turned to the claims under Section 17(a)(3) of the 1933 Act. The court examined the record, and addressed whether the first of two statements was a misrepresentation. It concluded that it was not. 23 The First Circuit declined to address the other statement, given the SEC's concession that, even under the SEC's reading, Section 17(a)(3) requires repeated misstatements over a period of time. 24 Moreover, the First Circuit declined to reach the issue of whether the SEC is entitled to apply Section 17(a)(3) to conduct that consists only of making misstatements. 25

Although the two individuals vigorously argued the Janus issue and the broader Section 17(a) issue before the SEC in the staff's appeal from the administrative law judge's decision, they did not address those issues on their appeal to the First Circuit. Consequently, the court could not address whether the SEC had overreached in its interpretation of Section 17(a) or Section 10(b).

The SEC's Expansive View of Section 10(b) and Section 17(a) Is Flawed

Review of those legal holdings by the SEC will have to await a later date. However, an examination of the SEC's holdings demonstrates that they are flawed and should not withstand judicial scrutiny. The SEC is wrong when it believes that it can use the other provisions in Rule 10b-5 to override the specific limitations set forth in subparagraph (b) when seeking to impose liability for the making of a misrepresentation. Those provisions cannot be based on a misrepresentation alone, and if it could be, then the assertion of liability on that ground alone must be subject to the limitations set forth in Janus. And for the same reason, the SEC cannot likewise interpret Section 17(a) of the 1933 Act to permit it to overcome the limitations built into Section 17(a)(2) regarding misrepresentations.

The SEC attempts to read subparagraphs (a) and (c) of Rule 10b-5 to create a loophole enabling it to evade the Supreme Court's strict reading of subparagraph (b), which prohibits the making on an untrue statement. As noted above, the SEC believes that it can use either of those two subparagraphs to bring enforcement proceedings for the making of a misrepresentation, and further believes that, because the word “make” does not appear in either of those two subparagraphs, the SEC is not bound by Janus. That reading of Rule 10b-5 is an invalid attempt to eviscerateJanus’ holding that only the “maker” can be found liable for a misrepresentation.

The SEC believes that the language in subparagraph (a) prohibiting employment of any device, scheme or artifice to defraud, and the language in subparagraph (c) prohibiting an act, practice or course of conduct that operates as a fraud or deceit, frees it from Janus. The SEC relies on the proposition that Janus applies only to provisions that use the word “make” as that language was the purported statutory basis for the Supreme Court's holding. 26 Yet, in making that simplistic observation, the SEC believes that claims under subparagraphs (a) and (c) can be enforced against conduct that consists only of misrepresentations, despite the fact that subparagraph (b) is the provision directed specifically at such conduct. 27 Indeed, the SEC expressly refuses to follow the case law that specifically holds that liability under either of those two subparagraphs must be based on conduct that is in addition to the making of a misrepresentation.28 In doing so, the SEC fails to offer any legal support for its refusal to abide by that case law, other than stating that the courts (as opposed to the SEC) have misread Supreme Court's decision in Central Bank and that, because Rule 10b-5 is its own rule, it can construe it in the manner that it deems appropriate.

The SEC shows an inexplicable arrogance in rejecting the courts' holdings with respect to the interplay among subparagraphs (a), (b) and (c) and in concluding that its interpretation of the Supreme Court's decision in Central Bankis superior to that of any of the courts. Further, the SEC may not rely on the fact that it authored Rule 10b-5. The scope of Section 10(b) of the 1934 Act is not subject to Chevron deference.

Indeed, in Central Bank, the Supreme Court chided the plaintiff for arguing that the SEC's interpretation prevailed because it authored Rule 10b-5. 29 Rather, the Supreme Court explicitly held that the scope of conduct prohibited by Rule 10b-5 is controlled by the statutory language of Section 10(b). 30 For instance, the Supreme Court drew attention to its decision in Chiarella v. United States31 when it stated:

Section 10(b) is aptly described as a catchall provision, but what it catches must be fraud. When an allegation of fraud is based upon nondisclosure, there can be no fraud absent a duty to speak. 32

In Central Bank, the Supreme Court then engaged in an exhaustive review of the 1934 Act as well as the 1933 Act to support the conclusion that there can be no liability for aiding and abetting the making of a misrepresentation. 33 It rejected the SEC's amicus argument that public policy supports such a claim. 34 The Supreme Court specifically held that the statute does not authorize imposition of liability for aiding and abetting, 35 and Rule 10b-5 therefore cannot do so.

The lower courts have correctly applied the teaching of Central Bank to prohibit use of subparagraphs (a) and (c) when there is no misconduct other than the misrepresentation. If that prohibition did not exist (as the SEC held in itsFlannery decision), those two provisions would become a backdoor to an aiding and abetting claim, despite the fact that the statute specifically prohibits such conduct.

The logic of Central Bank's impact on subparagraphs (a) and (c) is iron tight. Under Central Bank, the defendant must be the maker of the misrepresentation in order to be primarily liable – if the party is not the maker, then liability could be imposed only if the 1934 Act permitted a party to be secondarily liable. The 1934 Act (as of the time of Central Bank) barred aiding and abetting (or secondary liability) in connection with a violation of Section 10(b) of the 1934 Act.36 The Supreme Court based its holding on the statute itself and not on the language of Rule 10b-5 or subparagraph (b) thereof. If the basis for liability under subparagraph (a) or (c) is only a misrepresentation that the defendant did not make but (utilized or transmitted), then subparagraphs (a) and (c) would be, in effect, a vehicle to impose secondary liability when the statute prohibits it. Yet, such a result is precisely the result that the SEC spawns when it refused to follow the teaching of Central Bank and that decision's progeny.

There must be an independent fraudulent scheme or a course of conduct, with the alleged misrepresentations being made in furtherance of that scheme or course of conduct, in order to trigger liability under subparagraphs (a) or (c). A misrepresentation all by itself is not enough. This requirement is made plain in the district court's 2003 decision in In re Lernout & Hauspie Securities Litigation37 when it held:

While both sides make strong arguments in an area of sparse law, the better reading of §10(b) and Rule 10b-5 is that they impose primary liability on any person who substantially participates in a manipulative or deceptive scheme by directly or indirectly employing a manipulative or deceptive device (like the creation or financing of a sham entity) intended to mislead investors, even if a material misstatement by another person creates the nexus between the scheme and the securities market.

To be sure, the line between primary and secondary liability in a scheme or course of business case can be murky and fact-sensitive. Unlike Primavera, where the stock sold by the broker defendants to the hedge funds were simply high risk, the complaints here have alleged that most of the strategic partner entities were complete shams. If it turns out that the entities were viable, legitimate, ongoing strategic partners, then the only fraud was misrepresenting the relationship between L&H and the strategic partners,Primavera would support a conclusion of lack of primary liability under §10(b). 38

The district court in In re Parmalat Securities Litigation reached a similar conclusion. 39 And since the issuance of those two district court decisions, the federal courts addressing this issue have adhered to the requirement that there must be an actual scheme or course of conduct, of which the misrepresentation is only a part, for a claim to be asserted under subparagraphs (a) or (c). 40

The SEC's refusal to abide by these holdings is devoid of any analysis or support. The SEC essentially relies on its ownipse dixit to justify rejection of that authority. 41 It is not enough for the SEC to declare that the courts have misreadCentral Bank, without making any attempt to demonstrate why that misreading is wrong or how the SEC's holding is consistent with Central Bank. Nor is it sufficient for the SEC to declare, as it did in Flannery, that it is empowered to interpret Rule 10b-5. Such a justification begs the question, since Central Bank is based on the statutory language of Section 10(b).

41 SEC Decision, 2014 WL 7145625, at *14-15.

The SEC compounds its error when it then dismisses the district court's decision in SEC v. Kelly42 which applied Janusto the SEC's claims under Rule 10b-5. The SEC chose to disregard Kelly on the ground that subparagraphs (a) and (c) do not include the word “make.” 43 Yet, if liability under subparagraph (a) or (c) can be predicated solely on a misrepresentation, transmitted or used by someone who is not the maker, the effect of imposing liability on that basis would be to override Janus (as well as Central Bank) and the requirement that only a maker may be primarily liable for making a misrepresentation under Section 10(b).

The court in Kelly confronted that very situation. The SEC's complaint in Kelly asserted claims under subparagraphs (a) and (c) were based solely on misrepresentations. The district court described the essence of the SEC's claim as follows:

The SEC's complaint defines the nature of the purported scheme by explicit reference to the alleged public misrepresentations – the inflation of advertising revenue reported to the investing public and AOL's SEC filings from 2000 through 2003. The SEC alleges that Rindner and Wovsaniker “engineered, oversaw, and executed a scheme to artificially and materially inflate the Company's reported online advertising revenue … .” In its opposition brief, the SEC concedes that the “fraudulent scheme . . . [was] to generate artificial advertising revenue” in AOL's public filings. Although conduct itself can be deceptive as the SEC argues, this case is not about conduct that it is itself deceptive – it is about conduct that became deceptive only through AOL's misstatements in its public filings. 44

The district court cited to the numerous federal court holdings that subparagraphs (a) and (c) must be based on more than a misstatement, 45 and stated:

Nonetheless, where the primary purpose and effect of a purported scheme is to make a public misrepresentation or omission, courts have routinely rejected the SEC's attempt to bypass the elements necessary to impose “misstatement” liability under subsection (b) by labelling the alleged misconduct of a “scheme” rather than a misstatement.” Courts have not allowed subsections (a) and (c) of Rule 10b-5 to be used as a “backdoor into liability for those who help others make a false statement or omission in violation of subsection (b) of Rule 10b-5.” As this Court explained in PIMCO, to permit scheme liability “to attach to individuals who did no more than facilitate preparation of material misrepresentations or omissions actually communicated by others . . . would swallow” the bright-line test between primary and secondary liability. 46

The district court further observed that one of the premises underlying Janus was the preservation of the distinction in the 1934 Act between primary and secondary liability (a fact that the SEC ignores in its discussion of Janus). 47Accordingly, the district court observed: “Where the SEC is attempting to impose primary liability under subsections (a) and (c) of Rule 10b-5 for a scheme based upon an alleged false statement, permitting primary scheme liability when the defendant did not ‘make’ the misstatement would render the rule announced in Janus meaningless.” 48

The SEC rejected that analysis by asserting that “[a] number of district courts have disagreed with Kelly’s reading ofJanus.” 49 Yet, a review of the decisions cited by the SEC show, in fact, the contrary. In those instances, the courts were addressing claims of “scheme” liability predicated on more than misstatements. 50 One of those decisions, SEC v. Garber, expressly echoed in Kelly's reasoning and cited to Kelly in support of that reasoning. 51

Finally, the SEC's attempt to assert liability under Section 17(a)(3) is another instance of exploding the scope of one subparagraph to evade the stricter elements of set forth in another subparagraph of the same section. Here, subparagraph (2) makes it unlawful “to obtain money or property by means of” a misrepresentation. Subparagraph (3), on which the SEC relied to hold one of the defendants liable, makes it unlawful “to engage in any transaction, practice or course of business which operates or would operate as a fraud or deceit upon the purchaser.”

In Flannery, the SEC could not allege a violation of subparagraph (2), as no money or property was obtained. To compensate for the inability to allege a misrepresentation claim, the SEC held that multiple misrepresentations by themselves constitute a course of business under subparagraph (3). 52 The SEC reasoned that Section 17(a) differs from Section 10(b) of the 1934 Act and that the subparagraphs of Section 17(a) are “mutually supporting rather than mutually exclusive.” 53 The SEC stated that holding the provisions to be “mutually exclusive would inappropriately limit Division's ability to charge fraudulent conduct and thereby protecting investors.” 54 In making that determination, the SEC did not engage in any statutory construction, but instead relied solely on public policy reasons and a distortion of the Supreme Court's decision in United States v. Naftalin55 which concerned construction of Section 17(a)(1). 56

In Naftalin, the Supreme Court held that the “purchaser” requirement in subparagraph (b) concerning a different type of misconduct could not be grafted into the other two subsections, stating that “[e]ach succeeding prohibition is meant to cover additional kinds of illegalities – not to narrow the reach of the prior sections.” 57 The issue, however, inNaftalin did not involve an attempt to make a party liable for conduct for which liability was explicitly circumscribed by one of the other subsections, as occurred in Flannery58 Naftalin did not endorse use of a more general provision to evade or undermine a specific provision.

Further, there is a strong parallel between Section 17(a) and Section 10(b), even though the two provisions differ with respect to the requirement of scienter. Just like liability under subparagraph (a) or (c) of Rule 10b-5 cannot be predicated on misrepresentations alone and requires some other scheme or course of conduct, subparagraph (3) of Section 17(a) cannot be read to embrace misrepresentations merely because they are multiple. Congress specifically set forth the circumstances when a misrepresentation may be actionable under Section 17(a). In other words, subsection (3) cannot be used to sanction conduct that is not actionable under one of the other two subparagraphs simply because the SEC cannot assert a prima facie claim to satisfy the other subparagraph. If so, the SEC's interpretation of subsection (3) would obliterate the scienter requirement in subsection (1) and the purchaser requirement in subsection (2). Such a result is contrary to the basic canons of statutory construction.

Conclusion

Operating under the truism that the 1933 Act and the 1934 Act are remedial statutes to be liberally construed, the SEC has attempted to expand liability under Section 17(a) of the 1933 Act and Section 10(b) of the 1934 Act. Yet, the SEC ignores clear holdings by the Supreme Court as well as the lower federal courts regarding those provisions, and tramples the rules of statutory construction.

There is a reasonable risk that the SEC will attempt to commence enforcement proceedings in new instances under Section 17(a) and Section 10(b) based on the interpretations that the SEC expressed in Flannery. To the extent that the SEC does so through its in-house administrative process, review of the SEC's position will have to wait for a Court of Appeals to review the SEC's interpretation of those two provisions. If, on the other hand, the SEC commences the enforcements action in district court and attempts to assert claims based on Flannery, then the courts will be able to confront immediately whether the SEC is overreaching.

This risk creates an unduly prejudicial environment for defendants in enforcement proceedings. As much as the SEC might want to escape the shackles imposed by the language of the 1933 and 1934 Acts and the Supreme Court decisions construing those acts, the SEC is not licensed to go beyond those bounds. Although defendants will likely succeed in defeating the SEC's attempts to push the limits of Section 17(a) and Section 10(b), they will have to do so at great expense, both in terms of attorney's fees and reputational damage. The far better result would be for the SEC itself to recognize that, with Flannery, it has gone beyond the bounds of the two statutes and that it must instead construe Section 17(a) and Section 10(b) in a manner that is consistent with federal case law.

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1 Nos. 15-1080, 15-1117, 2015 WL 812647 (1st Cir. Dec. 8, 2015).

2 131 S. Ct. 2296 (2011).

3 Securities Act Release No. 9689, Exchange Act Release No. 73,840 & Investment Company Act Release No. 31,374, 2014 WL 7145625 (Dec. 15, 2014) (the “SEC Decision”).

4 In re Flannery, Release No. 438, 102 S.E.C. Docket 1392, 2011 WL 5130058, at *34-35 (Oct. 28, 2011).

5 Id. at *40.

6 Id.

7 Id. at *48.

8 SEC Decision, 2014 WL 714562, at *10-11, 12-13.

9 Id. at *10-11.

10 Id. at *13.

11 Id. at *12.

12 511 U.S. 164 (1994).

13 SEC Decision, 2014 WL 714562, at *14-15.

14 Id. at *15-16.

15 Id. at 16.

16 Id. at *17-18.

17 Id. at *17 & n.95.

18 Flannery, 2015 WL 8121647, at *7 (citations omitted; ellipsis and brackets in original).

19 Id. (citation and internal quotation marks omitted).

20 Id. at *8.

21 Id. at *8 n.9.

22 Id. at *8 (citation omitted; brackets in original).

23 Id. at *9-10.

24 Id. at *11.

25 Id.

26 SEC Decision, 2014 WL 714562, at *11.

27 Id. at *12.

28 Id. at *12-13.

29 Central Bank, 511 U.S. at 174.

30 Id.

31 445 U.S. 227 (1980).

32 Id. at 174 (quoting Chiarella, 445 U.S. at 234-35).

33 Id. at 176-77.

34 Id. at 188-89.

35 Id. at 177-78.

36 In 1995, subsequent to Central Bank, Congress amended the 1934 Act to permit only the SEC to prosecute claims for aiding and abetting, but the SEC's claims in Flannery were only for primary liability under Section 10(b).

37 236 F. Supp. 2d 161 (D. Mass. 2003).

38 Id. at 173-74.

39 376 F. Supp. 2d 472, 502-03 (S.D.N.Y. 2005).

40 SEC Decision, 2014 WL 7145625, at *16 n.69.

42 817 F. Supp. 2d 340 (S.D.N.Y. 2011).

43 SEC Decision, 2014 WL 7145625, at *15.

44 Kelly, 917 F. Supp. 2d at 343-44 (citations omitted; brackets, emphasis and ellipses in original).

45 Id. at 343.

46 Id. (citations omitted; ellipsis in original).

47 Id. at 344.

48 Id.

49 SEC Decision, 2014 WL 7145625, at *15 n.76.

50 E.g.SEC v. Familant, 910 F. Supp. 2d 83, 87-88, 97 (D.D.C. 2012); SEC v. Sells, No. C 11-4941 (CW), 2012 WL 3242551, at *7 (N.D. Cal. Aug. 10, 2012).

51 959 F. Supp. 2d 374, 380-81 (S.D.N.Y. 2013).

52 SEC Decision, 2014 WL 7145625, at *18-19.

53 Id. at *17.

54 Id. at *18.

55 441 U.S. 768 (1979).

56 SEC Decision, 2014 WL 7145625 at 17-18 & 17 n.95.

57 441 U.S. at 774 (citation omitted).

58 Id. at 772-74.

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