The American Institute of CPAs has written to the leaders of the Senate Banking, Housing and Urban Affairs Committee opposing language in a proposed law that could expose more accountants to fraud lawsuits.
AICPA president and CEO Barry Melancon objected to a provision in the Restoring American Financial Stability Act of 2009 that would create a new private right of action for allegations of aiding and abetting violations of the Securities Exchange Act of 1934. The provision, in Section 984 of the bill, would lower the current legal standard for conduct in aiding and abetting cases brought by plaintiffs attorneys from a standard of knowingly committing a violation to mere reckless behavior.
Because recklessness is not defined, and as a practical matter is a vague standard, this change alone would result in a significant increase in litigation, wrote Melancon in a letter to Sen. Christopher Dodd, D-Conn., and Richard Shelby, R-Ala. Under the proposed recklessness standard, a plaintiffs attorney would need to allege only that an audit firm performed acts that in some way may have aided the registrants fraud, even though the audit firm did not know their acts were in furtherance of a fraud
Melancon warned that if the language in the provision remained in the final legislation, plaintiffs attorneys would cast a wider net, adding defendants to lawsuits not because of any real merit in the claim, but because of their ability to pay.
Even for someone who really does aid and abet a fraud, the culpability will be far less than the primary participants in the fraud, said Melancon. In reality, allowing aiding and abetting suits by private parties will result in defendants being named based primarily on the deep pockets of those secondary actors and result in disproportionate liability.
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