Broker-Dealer Litigation - Greenberg Traurig LLP

hedge fund managed by the portfolio manager. The SEC sought civil penalties under the
Advisors Act for aiding and abetting. The district court granted the defendants’ motion to
dismiss the civil penalties for aiding and abetting. The Second Circuit overturned the district
court, holding that civil penalties may be assessed under the Advisors Act for aiding and abetting
violations because a “violation” includes the aiding and abetting of principal violations. Thus,
the civil penalty provision encompasses both primary and secondary violators.
VanCook v. SEC, 653 F.3d 130 (2d Cir. 2011).
Petitioner, a former registered representative, sought review of an order of the Securities
and Exchange Commission, which found that he willfully violated the antifraud and
recordkeeping provisions of the Securities Exchange Act of 1934 by orchestrating a scheme that
allowed favored customers to engage in late trading of future funds, and by aiding and abetting
his firm to keep inaccurate books and records. Rule 17a-3(a)(6), promulgated under
Section 17(a)(1) of the Exchange Act, provides that covered brokers and dealers shall make and
keep a memorandum of each brokerage order for the purchase or sale of securities. In
October 2001 an amendment was added to the rule, requiring the order memo to include the time
the order was received. It was uncontested that the firm failed to timestamp or otherwise record
the times it received final trading decisions. The registered representative argued, however, that
he could not be held liable for aiding or abetting the firm’s recordkeeping violations because he
lacked the requisite scienter due to the fact that it was someone else’s job to keep current with
the requirements of technical rules such as recordkeeping. The court held that there was ample
evidence in the record that supported the SEC finding that the registered representative had
actual knowledge that the firm’s records were inaccurate because he himself had designed a
scheme to make them so, and that he therefore deliberately aided and abetted the firm’s
violations of Rule 17a-3(a)(6) and Section 17(a)(1).
Amacker v. Renaissance Asset Mgmt. LLC, 657 F.3d 252 (5th Cir. 2011).
Appellants, investors in a commodity pool, filed suit against appellees, futures
commission merchants, alleging violations of the Commodity Exchange Act (“CEA”) for
willfully aiding and abetting an investment pool operator in his scheme to defraud investors. The
investors alleged that the merchants willfully aided and abetted the fraud by not conducting
background investigations into the investment pool operator and his company as required by the
Patriot Act amendments to the Bank Secrecy Act. The investors acknowledged that the
merchants had no actual knowledge of the fraud, but rather argued that the failure to investigate
demonstrated extreme recklessness sufficient to satisfy the “willful” requirement under the CEA,
a lower standard than knowledge or intent. Investors relied on the court’s prior holding in Abbot
v. Equity Group, Inc., 2 F.3d 613 (5th Cir. 1993). In that case, the court held that “extreme
recklessness” could serve as the proper scienter if: (1) the defendant had some special duty of
disclosure; or (2) if the assistance provided to the primary violator was unusual in character and
degree. The court held that, assuming extreme recklessness could serve as the proper scienter,
plaintiffs failed to establish that either of the two exceptions applied. Thus, the routine execution
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