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Home Advocacy Federal Issues Aiding and Abetting Liability

Federal Issues

Aiding and Abetting Liability 

The Private Securities Litigation Reform Act of 1995 empowered the Securities and Exchange Commission to pursue aiding and abetting securities claims against third parties that have a business relationship with a company engaged in fraudulent activity if they had knowledge of the fraud.  The AICPA supports leaving the enforcement for aiding and abetting with the SEC, not outsourcing the enforcement to plaintiff’s lawyers.

With the unfolding of the financial crisis, there have been a series of attempts in the House and Senate to expand aiding and abetting liability enforcement to plaintiff’s attorneys.  The AICPA supports the SEC’s interest in reducing the standard of aiding and abetting knowledge from its current standard of “knowingly” to one of “recklessly” but opposes any attempts to give private attorneys the right to bring aiding and abetting claims under the securities laws thereby overturning the balance struck in the 1995 reforms.

Legislative Action

On July 30, 2009, former Senator Arlen Specter, a Pennsylvania Democrat, introduced S. 1551, which would overturn two U.S. Supreme Court decisions in Stoneridge and Central Bank of Denver that had upheld the SEC’s enforcement authority.  The bill would grant plaintiff’s lawyers license to sue under a widened aiding and abetting theory and expose virtually any third party that works with a publicly held business to accusations of securities fraud.

During consideration of Financial Regulatory Reform legislation in the House Financial Services Committee, an amendment was drafted but not offered to grant plaintiff's attorneys the ability to pursue aiding and abetting cases.  The final legislation, H.R. 4173 contained language that would reduce the “knowing” standard to “reckless” for the SEC only. 

On April 15, 2010, former Senator Christopher Dodd, a Connecticut Democrat, introduced  the financial regulatory reform bill entitled the Restoring American Financial Security Act of 2010 (bill number S. 3217).   The original discussion draft that Senator Dodd circulated in November 2009 included language expanding aiding and abetting liability to allow plaintiffs' attorneys for the first time since passage of the Private Securities Litigation Reform Act of 1995 to sue parties that may have aided or abetted a securities violation, but this language was dropped from the Restoring American Financial Security Act of 2010.  On the heels of the circulation of November 2009 discussion draft, Senator Robert Menendez, a New Jersey Democrat, introduced S. 2183 on November 20, 2009 which included a similar widening of aiding and abetting liability sought by plaintiff’s attorneys.

During the Senate floor debate of S. 3217, an amendment was filed by Senator Specter, which was similar to his original bill S. 1551, to increase aiding and abetting liability.   However, the amendment was never offered and S. 3217 passed the Senate on May 20, 2010. 

During the House/Senate Conference, Representative Maxine Waters, California Democrat, offered the amendment allowing for plaintiffs’ attorneys to sue for aiding and abetting.  The amendment was agreed to by the House Conferees on a 11-8 vote.

The Senate conferees rejected the amendment, and the Conference replaced the Waters amendment with a GAO study on the issue to be completed within one year of the date of enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Copy of Legislation

A copy of the law is available on the Library of Congress's THOMAS website.  The law, and all major Congressional actions leading to passage, are available by using the advanced search function and searching for H.R. 4173 by bill number under the 111th Congress.  The THOMAS website also includes copies of other bills noted above and all Congressional actions, including S. 3217, H.R. 4173, S.1505 and S. 2183.

AICPA Letters

May 12, 2010 Letter from Barry Melancon to the Members of the Senate Advocating for a "No" vote on the Specter Aiding and Abetting Amendment to S. 3217 (sent originally as email)

April 7, 2010 Letter from Barry Melancon to the Members of the Senate Regarding Potential Aiding and Abetting Amendment to the Senate financial regulatory reform legislation

October 20, 2009 AICPA Letter to the House Financial Services Committee opposing any amendment allowing for private rights of action under aiding and abetting

November 18, 2009 AICPA Letter to the Senate Banking Committee opposing the language in the discussion draft allowing for private rights of action under aiding and abetting 

Staff Contact

Peter Kravitz
Director, Congressional Affairs
202.434.9218
pkravitz@aicpa.org

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AICPA Letter to House Financial Services Committee Supporting H.R. 1564.

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Published on May 01, 2013

Congressional and Political Affairs Advocacy

Overview:  The AICPA monitors and advocates on legislative and other matters that affect the accounting profession. Working with state CPA societies and other professional organizations, the AICPA provides information to and educates federal, state and local policymakers regarding key issues.
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Convergence of International and US Accounting Principles and IFRS

Article:  International Financial Reporting Standards (IFRS) set by the International Accounting Standards Board (IASB) in London is a response to worldwide demand from regulators, investors, businesses, and auditing firms for a single set of high-quality, globally-accepted accounting standards.
Published on April 03, 2013

Tax Legislation and Policy

Article:  The Congressional and Political Affairs Team often assists the Tax Team with tax legislation and policy issues, and advocates about them to Members of Congress and other key policymakers on behalf of the profession.
Published on April 03, 2013

Section 404(b) of Sarbanes-Oxley Act of 2002

Article:  The Sarbanes Oxley Act requires that the management of public companies assess the effectiveness of the internal control of issuers for financial reporting.  Section 404(b) requires a publicly-held company’s auditor to attest to, and report on, management’s assessment of its internal controls. AICPA believes that all investors in public companies
Published on April 03, 2013

GAO Study of Financial Planning

Federal Law:  Dodd-Frank required the GAO to conduct a study on the effectiveness of existing regulation of financial planners, including tax advisors.  The AICPA met with the GAO during the study to present the profession’s point of view.  AICPA strongly opposed any new regulatory structure affecting CPAs as they are already comprehensively
Published on April 03, 2013

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Article:  Learn about the AICPA's award winning financial literacy programs.
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FASB Independence and Fair Value Accounting

Article:  The AICPA strongly and unequivocally supports independence of the U.S. and international accounting standard setting bodies, the Financial Accounting Standards Board (FASB) in Norwalk, Connecticut, and the International Accounting Standards Board (IASB) in London.
Published on April 03, 2013

Extraterritorial Private Rights of Action, also known as F-Cubed Litigation

Article:  The accounting profession believes private litigants may utilize U.S. securities laws within the territorial jurisdiction of the U.S. and that the United States Supreme Court decision in Morrison v. National Australia Bank, Ltd. is the correct reading of the Securities Exchange Act of 1934.
Published on April 03, 2013

Consumer Financial Protection Bureau

Article:  This article outlines the AICPA's involvement with the development of the Consumer Financial Protection Bureau (CFPB). The AICPA was successful in winning recognition by House and Senate lawmakers of the vital role CPAs play in advising Americans on their financial decisions, thus preventing CPAs from reporting to a new regulatory body.
Published on April 03, 2013

Federal Legislative and Regulatory Issues

Federal Law:  This page highlights the advocacy issues in which the Congressional & Political Affairs Team is advocating on behalf of the profession, and also those issues that the team has recently followed.
Published on March 29, 2013

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