The University of New Hampshire Law Review


[Excerpt] “Lawyers who make their living representing securities issuers face a myriad of challenges. Securities lawyers must navigate and master an intricate body of statutory, regulatory, and case law at both the state and the federal level and ensure that their clients comply with the law. The compliance requirement, however, is not limited to the issuer clients. Defrauded investors will often seek recovery of their losses from both the issuer of the failed investment securities and from the lawyers who represent the issuer, which only exacerbates the complexity of the securities lawyer’s work. These securities fraud actions against lawyers raise serious questions about the proper scope of liability under the federal securities laws. Just as lawyers strive for clarity, consistency, and predictability in advising their clients on securities compliance issues, lawyers seek the same level of precision regarding their own compliance.

The Court has never directly addressed the issue of attorney liability under section 10(b) of the 34 Act and Rule 10b-5. However, the Court’s recent pronouncements on primary liability of secondary actors under Rule 10b-5 indicate that the standard for such liability is increasingly becoming one that attorneys acting in the traditional role of adviser and draftsperson to securities issuers will not satisfy. This development does not give lawyers unbridled freedom or authority to commit securities fraud without fear of sanction, nor does it undermine the 34 Act’s purpose of insuring fairness and honesty in the securities markets. On the contrary, protecting lawyers who lend their expertise to the issuers and sellers of securities is consistent with insuring such fairness and honesty. Moreover, existing rules and standards governing attorney conduct and the concomitant penalties for violation of those rules provide the appropriate level of regulation for lawyers, and this article does not suggest otherwise. The article argues only that section 10(b) and Rule 10b-5 are inappropriate and, in most cases, inapposite means of redressing attorney misconduct in connection with a fraudulent securities transaction.

Part II of this article will provide some background on section 10(b) and Rule 10b-5 and will discuss how section 10(b) and Rule 10b-5 have been applied in the area of liability of outside service providers such as lawyers and other secondary actors. In addition, part II will review the most recent developments of the law in this area and discuss how these developments provide an increased level of protection for securities lawyers. Part III of this article will examine how other areas of federal and state law have addressed the issue of attorney liability and suggest that the concepts can be applied to the section 10(b) and Rule 10b-5 analysis. Part IV will briefly discuss the role of the securities lawyer and the influence of the market for legal services on the manner in which these lawyers sell their services to potential clients. The article will then argue that the potential liability of any person under section 10(b) and Rule 10b-5 must be defined in terms of conduct and not in terms of the person’s role in the particular transaction giving rise to the claim. That framework will permit the securities lawyer to more effectively fulfill his or her role because the standard for attorney liability in a private action under section 10(b) and Rule 10b-5 will be clearer.”

Repository Citation

Gary M. Bishop, A Framework for Analyzing Attorney Liability Under Section 10(b) and Rule 10b-5, 10 U.N.H. L. REV. 193 (2012), available at http://scholars.unh.edu/unh_lr/vol10/iss2/3