Friday, November 7, 2008

Securities - 10th Circuit Affirms Consultant Fraud Liability

In SEC v. Wolfson, an action alleging violations of securities fraud provisions, the Tenth Circuit Court of Appeals affirmed a decision by a Utah district court that a consultant was liable as a primary violator.

In the case the consultant drafted periodic reports for the reporting company. Those reports contained material misstatements and omissions. On appeal the consultant argued that the SEC had failed to show that the consultant was the primary violator. He argued it was the reporting company that was actually responsible for the improper filings.

The Tenth Circuit reasoned that the consultant knew the misstatements and omissions, for which he was responsible, would be disseminated to the investing public. The fact that the company made the filings in its own name did not insulate the consultant from liability. To the contrary, the court determined that the consultant had played a central role in the fraud by preparing the filings while knowing that they would reach the public.

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