511 U.S. 164 (U.S. Supreme Court 1994)
Central Bank of Denver is a watershed decision in federal securities law that reshaped the liability landscape for secondary actors—banks, lawyers, accountants, and other "gatekeepers"—in private Rule 10b-5 litigation. Before this case, most federal courts allowed private plaintiffs to sue alleged aiders and abettors who substantially assisted a primary fraud.
May a private plaintiff maintain an aiding-and-abetting action under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 against a defendant that did not itself commit a primary manipulative or deceptive act?
Section 10(b) makes it unlawful to use or employ, in connection with the purchase or sale of any security, any manipulative or deceptive device or contrivance in contravention of SEC rules. The implied private right of action under Section 10(b)/Rule 10b-5 extends only to primary violators who themselves engage in manipulative or deceptive conduct—such as making a material misstatement or omission with scienter or employing a deceptive scheme. The statute does not authorize private civil liability for aiding and abetting a Section 10(b) violation, and SEC rulemaking cannot create such liability beyond the statute's text.
No. Private plaintiffs may not bring aiding-and-abetting claims under Section 10(b) and Rule 10b-5. The implied private right of action covers only primary violations by those who themselves commit manipulative or deceptive acts.
Central Bank of Denver sharply limited private securities fraud litigation by eliminating aiding-and-abetting liability under Section 10(b)/Rule 10b-5. After the decision, plaintiffs could no longer sue secondary actors simply for substantially assisting a primary fraud; they had to plead and prove that each defendant committed a primary manipulative or deceptive act with scienter and that investors relied on that act. Congress partially responded in the PSLRA of 1995 by authorizing the SEC (but not private plaintiffs) to bring aiding-and-abetting actions under Exchange Act Section 20(e)—authority later expanded by Dodd-Frank to include reckless assistance. The decision set the stage for later Supreme Court cases refining primary liability and the role of secondary actors, including Stoneridge (scheme liability and reliance), Janus (who "makes" a statement), and Lorenzo (primary liability for disseminating false statements). For law students, the case anchors modern 10b-5 doctrine on textual limits, the contours of primary versus secondary liability, and the judicial role in implied rights of action.