§ 6.1.2.3

• Jurisdiction: Arizona

§ 6.1.2.3 Actively Aiding Securities Fraud

Section 44-1991(A) is most commonly invoked to remedy misleading statements and omissions. This is so much so that in 1996 the legislature enacted a statute establishing special requirements for pleading misleading statements.¹⁸⁷⁹ Under the 1996 amendment each statement alleged to be misleading must be pleaded and the reasons that the statements are misleading stated.¹⁸⁸⁰

The 1996 statute says nothing about pleading misleading conduct.¹⁸⁸¹ But § 44-1991(A) prohibits misleading conduct as well as misleading statements and omissions.¹⁸⁸² Subsections (A)(1) and (A)(3) of § 44-1991 prohibit persons from directly or indirectly employing schemes and artifices or engaging in a course of business or practice that operates fraudulently.¹⁸⁸³ In a 2006 decision, the Court of Appeals described these subsections as "broadly prohibit[ing]" fraudulent schemes and quoted the 1951 statement of legislative intent in support of liberally construing them.¹⁸⁸⁴

The language of § 44-1991(A)(3), which prohibits fraudulent business and practices, is the most sweeping of the two scheme provisions. Violations of § 44-1991(A)(3) are also more easily proved because, unlike prohibited conduct under § 44-1991(A)(1), scienter is not required under § 44-1991(A)(3).¹⁸⁸⁵

Schemes commonly involve multiple actors who assist one another in perpetrating the scheme or fraudulent course of business.¹⁸⁸⁶ The issuer, its management, its attorneys, its bank, and its auditors may all culpably take part in a fraud.¹⁸⁸⁷ Although their roles and fault may vary, each may undertake a role that makes him or her an active party to the fraud.¹⁸⁸⁸

Before 2013, plaintiffs who sued defendants in a multiple-actor scheme would typically include an aiding-and-abetting claim in their complaint.¹⁸⁸⁹ Since the 2013 Sell decision,¹⁸⁹⁰ a separate claim for aiding and abetting does not exist.¹⁸⁹¹ But the plaintiff in a fraudulent-conduct case remains entitled to sue for express liability those persons who actively engage in fraudulent conduct prohibited by § 44-1991(A)(1) and (A)(3).¹⁸⁹²

This interpretation is supported by both the statutory words and case law. Section 44-1991(A)(1)'s prohibition on employing a scheme to defraud is surely broad enough to encompass all those who take part in the scheme. And § 44-1991(A)(3)'s prohibition on engaging in a fraudulent course of business or practice is expansive enough to cover all persons who actively take part in a fraudulent course of business or transaction.

This is confirmed by case law. In Geiler v. Arizona Bank, a 1975 decision,¹⁸⁹³ the Court of Appeals decided a case in which a bank and a lawyer were alleged to have assisted the defendant in a scheme to fraudulently purchase the plaintiff's stock. Only the bank appealed, but the Court of Appeals' opinion described the facts as supporting liability against both the bank and the lawyer.¹⁸⁹⁴ The court stated that a permissible view of the facts was that "Tanner [the purchaser], with the aid of his family, multiple corporations which he controlled, either directly or indirectly, a very resourceful lawyer, Raineri, a bank manager with a very respected financial institution, and inside information regarding [the plaintiff's] financial needs and concerns, carefully orchestrated a scheme" to swindle the plaintiff.¹⁸⁹⁵ So viewed, the court...