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59 Bus. Law. 975 (2003-2004)
Misrepresentations of Secondary Actors in the Sale of Securties: Does In re Enron Square with Central Bank

handle is hein.journals/busl59 and id is 993 raw text is: Misrepresentations of Secondary Actors in the Sale of Securities: Does In re Enron Square with Central Bank? By AegisJ. Frumento* INTRODUCTION Judge Melinda Harmon's recent decision in In re Enron Corp. Securities, Deriv- ative & ERISA Litigation' has spawned a new debate about what triggers private liability for misrepresentations in the sale of securities. Judge Harmon's opinion is a tour de force, a virtual textbook on the most current issues in class action securities litigation, and required reading for any securities litigator. The aspect of the opinion of interest here, however, is its adoption of what has come to be called the creation theory of secondary actor liability for misrepresentations under § 10(b) of the Securities Exchange Act of 1934 (the Act) and Rule 10b-5 promulgated thereunder, specifically subsection (b), which proscribes material misrepresentations and omissions in connection with the purchase or sale of se- curities.' In adopting the creation theory, Judge Harmon proffered a third option to the two already conflicting views of secondary actor liability that have evolved *Aegis J. Frumento co-heads the securities litigation practice group of Duane Morris LLP from it's New York City office. He can be reached by email at afrumento@duanemorris.com. Duane Morms associate Stephanie Korenman's significant role and substantial participation in the creation of this Article is acknowledged with thanks, but no misstatements or omissions should be attributed to her. 1. 235 F Supp. 2d 549 (S.D. Tex. 2002). 2. Section 10(b) states: It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumen- tality of interstate commerce or of the mails, or of any facility of any national securities exchange •.. [tlo use or employ, in connection with the purchase or sale of any security registered on a national securities exchange ... any manipulative or deceptive device or contrivance in contra- vention of such rules and regulations as the Commission may prescribe as necessary or appro- priate in the public interest or for the protection of investors. Securities Exchange Act of 1934 § 10, 15 U.S.C. § 78j (2000). Rule 10b-5 states: It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumen- tality of interstate commerce, or of the mails or of any facility of any national securities exchange, (a) To employ any device, scheme, or artifice to defraud, (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security 17 C.FR. § 240.10b-5 (2003).

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