In re Charter Communications, Inc. Securities Litigation and Simpson v. AOL Time Warner Inc.: Circuits Split Over the Validity of 'Scheme' Liability Under Section 10(b)

摘要

In its June 30, 2006 opinion in the case of Simpson v. AOL Time Warner Inc., the U.S. Court of Appeals for the Ninth Circuit wrote that a defendant may be held liable "as a primary violator of § 10(b) for participation in a 'scheme to defraud'" if the defendant "engaged in conduct that had the principal purpose and effect of creating a false appearance of fact in furtherance of the scheme." In reaching this conclusion, the Ninth Circuit rejected the defendants' argument that such a rule would inappropriately impose liability on parties who were not involved in any securities transactions "for conduct other than a material misstatement or omission." Thus, the Ninth Circuit embraced the theory of liability that securities litigation practitioners have come to refer to simply as "scheme liability" - liability for participating in a fraudulent scheme by some means other than a misstatement, omission, or manipulative securities trade.