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GAO-11-664 1 (2011-07-21)

handle is hein.gao/gaobacfef0001 and id is 1 raw text is: AFG A 0 Acuntabity I Integrity I Rehiablity United States Government Accountability Office Washington, DC 20548 B-321063 July 21, 2011 The Honorable Tim Johnson Chairman The Honorable Richard C. Shelby Ranking Member Committee on Banking, Housing, and Urban Affairs United States Senate The Honorable Spencer Bachus Chairman The Honorable Barney Frank Ranking Member Committee on Financial Services House of Representatives Subject: Securities Fraud Liability of Secondary Actors Since the 1930s, publicly traded companies that commit fraud in the issuance or sale of their securities have been liable to private investors under the U.S. securities laws, as well as subject to government enforcement of these laws. Entities commonly referred to as secondary actors-such as banks, brokers, accountants, and lawyers, who play important but generally lesser roles in securities transactions'-may also be liable to investors and to the government for certain securities law violations, but as of 1994, such entities are liable only to the government, not to investors, for substantially assisting- or aiding and abetting-securities fraud under section 10(b) of the Securities Exchange Act of 1934 (1934 Act).2 Before 1994, courts had interpreted section 10(b), as implemented by the Securities and Exchange Commission's (the 'In general, secondary actors are persons charged with secondary liability because they do not directly commit violations of the anti-fraud provisions but instead are alleged to provide substantial assistance to fraudulent conduct. Because transactions subject to the federal securities laws are often complex and involve multiple entities, it can be difficult to determine, at the time a violation occurs, who should be subject to primary versus secondary liability. In this report, we use the term secondary actor to refer to parties providing services to, or involved in transactions with, corporate issuers. 2 15 U.S.C. § 78j(b). GAO-11-664 Securities Fraud Liability of Secondary Actors

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