Vanderbilt Law Review

Article Title

Recent Cases

First Page



The instant decision is of major importance because it clearly defines a more liberal standard for aiding and abetting under section 10(b), reads a requirement of due care by accountants into section 17(a), and serves as an additional warning to the accounting profession of its expanding responsibilities in the field of securities regulation. By establishing negligence, duty to disclose, and causal connection, rather than actual knowledge, substantial assistance,and reliance, as the major elements of aiding and abetting a violation of Rule 10b-5, the Seventh Circuit has given this cause of action the broadest interpretation to date. Nothing precluded this interpretation because private civil remedies under-Rule 10b-5 are themselves creations of the courts. This decision, the outcome of which had been predicted by one commentator,' may be viewed as the culmination of a liberalizing trend that began in Brennan. Since these elements are defined in the abstract, they should apply in the Seventh Circuit in all aiding and abetting actions brought under the 1934 Act. The novel interpretation of section 17(a)52 to define the scope of duty owed by the profession to the investing public is particularly significant to the accounting profession. The scope of the duty imposed by this section, however, is not new; the instant court requires only that accountants use the standard of care set by their profession -- disclosure of any material inadequacy and refusal to certify a misleading financial report. This duty of care corresponds to that of the modern requirement for common-law negligent misrepresentation.