On September 11, 2009, on behalf of itself and 12 other law firms, Jones Day filed an amicus brief in a major securities fraud case pending in the United States Court of Appeals for the Second Circuit.
In PIMCO v. Mayer Brown (CA2 No. 09-1619-cv), U.S. District Judge Gerard Lynch dismissed securities fraud allegations against Mayer Brown and one of its partners. On appeal, plaintiffs, and the SEC in an amicus brief, have urged the Second Circuit to adopt a "creator" standard of liability, under which defendants could be found liable under Section 10(b) and rule 10b-5 where they draft or provide information in connection with a misstatement, even where the statement is not attributed to them and they do not have the final word in determining the disclosures to be made.
The amicus brief filed on September 11 attacks this "creator" test as sharply at odds with the words of the statute, which creates liability for using or employing a manipulative or deceptive device. In recent years, the Congress, the Supreme Court, and the Second Circuit have all made clear that 10b-5 liability in private law suits is to be strictly limited for secondary actors such as lawyers.
The amicus brief focuses substantially on the severe harms to the provision of legal services in support of securities law compliance that would result from adoption of the "creator" test. Presently, the ethical duties applicable to a lawyer in connection with the provision of securities law advice are determined by the intricate interaction of duties to clients arising under state bar rules and a separate set of duties and rights of disclosure of client confidences created by the Sarbanes-Oxley Act and construed by SEC regulations. In many situations discussed in the brief, the "creator" standard of liability would pose difficult or insurmountable incongruities and uncertainties in the context of the existing provisions. More generally, the vaguely articulated "creator" standard would create great uncertainty about the potential liability of lawyers in a broad range of situations, with the result that it would greatly increase the costs and diminish the availability of legal advice to assist securities issuers in achieving compliance with the law.