Ohio Attorney General Mark Dann has criticized US Solicitor General Paul Clement for filing an amicus brief with the US Supreme Court that argues against liability for certain forms of securities fraud. As mentioned here, Dann filed an amicus brief earlier this year along with 31 other state AGs arguing the opposite position. The SEC had asked the federal government to take the position of the state AGs in support of the defrauded investors but the Bush administration demurred.
At the heart of the case is Section 10(b) of the Securities Exchange Act which essentially prohibits the use of any manipulative or deceptive device in connection with the purchase or sale of a security. The Eighth Circuit has held that fraud is not deceptive under Section 10(b) unless the defrauding party made a misstatement or failed to disclose information despite a duty to disclose. Defrauded investors argue that such a ruling protects accountants, lawyers, banks, and other third parties who perpetuate fraud but who don’t actually make misleading statements to investors. Oral argument is set for this fall.