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WASHINGTON – Sen. Arlen Specter, D-Pa., has introduced legislation that would allow civil suits to broaden the number of actors that may be sued for securities law violations.

The bill, S. 1551, called the Liability for Aiding and Abetting Securities Violations Act of 2009, would overturn the U.S. Supreme Court’s 2008 ruling in Stoneridge Investment Partners v. Scientific-Atlanta Inc., which held that defrauded stockholders had not shown the reliance necessary to bring an action against third-party actors under the Securities Exchange Act. See High Court rules against investors in Stoneridge.

The bill would amend the law to provide for a private civil action based on the theory of “scheme liability” against players involved in a fraudulent scheme, even if there was no specific reliance on the actors by investors.

The legislation provides that “any person that knowingly or recklessly provides substantial assistance to another person in violation of this title, or of any rule or regulation issued under this title, shall be deemed to be in violation of this title to the same extent as the person to whom such assistance is provided.”

The bill was immediately assailed by the U.S. Chamber of Commerce.

Lisa A. Rickard, president of the Chamber’s Institute for Legal Reform, said the bill “will benefit securities class action plaintiffs’ lawyers at the expense of average investors and workers.”

“Private securities class actions do not deter fraud,” Rickard said. “The best way to punish executives and companies that commit fraud is not by undercutting Supreme Court rulings and encouraging more private lawsuits, but through tougher enforcement of existing civil and criminal laws.”

-Kimberly Atkins

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