In Central Bank of Denver v. First Interstate Bank of Denver, petitioner served as an indentured trustee for bonds issued in 1986 and 1988 to finance public improvements at a planned residential and commercial development. Landowner assessment lien's secured the bonds, and the covenant required the land subject to the lien be worth at least 160 percent of the bond's outstanding principal and interest. The land's developer was to provide petitioner an annual report indicating fulfillment of the 160 percent test. In January 1988, the developer reported to petitioner that land values remained unchanged from the 1986 appraisal. Shortly thereafter, the senior underwriter for the 1986 bonds sent a letter to petitioner asserting that property values were declining and that petitioner was functioning on an appraisal outdated by sixteen months. In-house appraisers advised petitioner that an independent review was needed on the 1988 appraisal. At the urging of the developer, petitioner agreed to delay the reappraisal until six months after the closing of the 1988 bond issue. The Authority defaulted on the 1988 bonds prior to the completion of the reappraisal. Respondent, as purchasers of $2.1 million of the 1988 bonds, sued petitioner, among others, for violation of section 10(b) of the Securities Exchange Act of 1934. The complaint alleged petitioner was "secondarily liable under § 10(b) for its conduct in aiding and abetting the fraud." The district court granted summary judgment to petitioner, and the Court of Appeals for the Tenth Circuit reversed and remanded. On appeal, the Supreme Court held that section 10(b) of the Securities Exchange Act of 1934 does not permit a private plaintiff to extend civil liability to those who only aid and abet the violation without themselves engaging in manipulative or deceptive practices.
Brown, Stephen H.
"Central Bank: The End of Secondary Liability Under Section 10(b) of the Securities Exchange Act of 1934,"
Mercer Law Review: Vol. 46:
4, Article 15.
Available at: https://digitalcommons.law.mercer.edu/jour_mlr/vol46/iss4/15