Corporate Governance

Prominent Corporate Law Scholar Supports Reintroduction of Aiding and Abetting Liability

By Jim Hodgson

The New York Law Journal recently published an article authored by influential corporate law scholar, Professor John C. Coffee, Jr. of Columbia Law School.  In his opinion piece, Professor Coffee predicts that we are roughly a year away from having both a Democratic president and a Democratically-controlled Congress -- for the first time in nearly a decade and a half.  If Professor Coffee?s political forecast pans out, then significant securities litigation reform is sure to follow, he says.

Professor Coffee?s current thinking is that the best type of securities litigation is that which is brought ?against third parties -- i.e., against officers, controlling shareholders, auditors, investment banks and other gatekeepers.?  Readers familiar with the Pomerantz firm?s recent Supreme Court case against outside vendors, Stoneridge Investment Partners v. Scientific-Atlanta, may see where this is heading?.

The first target for securities law reformers in 2009, according to Professor Coffee?  Overturning Central Bank of Denver v. First Interstate Bank.  Specifically, Professor Coffee recommends reversing the prohibition on the private prosecution of aiding and abetting liability instituted by the Supreme Court in the Central Bank decision.  Professor Coffee asserts that, particularly with the ever-worsening subprime mortgage crisis, the time has come once again to hold aiders and abettors of securities fraud accountable for their misdeeds.

Ironically, both sides in Stoneridge found something supportive in Professor Coffee?s guidance over the years.  But, his present campaign is clearly one that favors ?restor[ing] ?aiding and abetting? liability? because ?the barriers to [private securities litigation] have been raised too high.?  Professor Coffee?s words should be music to the ears of those investors who have been -- and will continue to be -- harmed by currently-protected third parties.  Congressional legislation that would overturn Central Bank would go a long way toward making those investors whole in the face of such third-party fraud.

Full post as published by PomTalk on November 30, 2007 (boomark / email).