Partner Peter Haveles Shares Insights on an Important Court Decision for the SEC in InsideCounsel

InsideCounsel recently covered the Second Circuit’s August reversal of a decision that would have made it much more difficult to make successful claims of aiding and abetting fraud. If the decision in Securities and Exchange Commission v. Joseph Apuzzo had gone the other way, it would have raised the bar on what constituted “substantial assistance” in the primary violation of the law. Because Joseph Apuzzo was not actually employed by the guilty company, but knowingly allowed them to engage in fraudulent schemes, a restricted definition of “substantial assistance” would have directly affected whether or not he could be found guilty of aiding and abetting fraud. This would have set a standard that would have caused major problems for the SEC in the future.

According to Kaye Scholer Complex Commercial Litigation Partner Peter Haveles, “The fact that the SEC brought this case in and of itself indicates that the SEC is willing to be aggressive and proactive in asserting claims for aiding and abetting.” He adds, “Apuzzo enables the SEC to proceed with more confidence that it can succeed in bringing these cases.”

The result of the Apuzzo case provides a good warning to people in similar situations as Joseph Apuzzo, who might consider themselves too tangentially involved in the fraud to be charged with aiding and abetting. As Haveles says, “When transactions are contrived and put together that have no real purpose other than to give the appearance of a stronger balance sheet, it creates risk for all the participants.” He goes on to advise, “When you’re looking at a transaction, be sure that there’s some bona fide business reason behind it so you don’t subject yourself to the type of risk you saw arising out of Apuzzo.”