Arlen Specter's Proposed Vicarious Fraud Liability Law Is Fundamentally Unfair

Going Concern reports that Arlen Specter supports a law which would attempt to overturn the Supreme Court precedent set in Stoneridge Investment Partners LLC v. Scientific-Atlanta Inc. and Central Bank of Denver v. First Interstate Bank of Denver. Specter's proposed bill would allow the imputation of civil liability for an intentional act such as fraud, when the person to be held liable had no intent. In so doing, it threatens to make an innocent party pay for another's bad acts.


"Substantial assistance" in merely providing otherwise legal professional services, without notice of or direct participation in the fraud is not sufficient to meet due process requirements. One of at three situations should be present before liability could attach: Actual or constructive notice that the fraud was occurring; violation of the relevant state's code of professional ethics; or a direct undertaking with the intent of committing or furthering a fraud. There must be a foundational requirement that is satisfied before indirect liability can be imposed in. Especially since we are dealing with a malicious act, like fraud, which requires intent--it doesn't make sense to impose vicarious liability on a party which lacked any form of malice, intent, or even knowledge. Perhaps a negligence standard would be appropriate. Even then, the negligence would have to have been about the fraud itself--i.e., if it would have been reasonable to make further inquiries when something seemed a bit off, or if there was actual notice that fraud had occurred--maybe then liability could attach. At any rate, imposing strict liability on professionals who happen to work for crooks--and extremely convincing crooks at that--creates a fundamentally unfair burden, and one that would have serious chilling effects on business.

Senator Specter would be wise to remember that the lawyers, accountants, and others who worked for Mr. Madoff and Mr. Dreier, were defrauded just as everyone else was--bilked out of millions in fees for services provided, and many of them were investors as well. Further, many good people doing solid work without a clue that they were operating a ponzi scheme are now unemployed. The great evil of both Madoff and Dreier is that they fooled everyone. It would be fundamentally unfair to impose a further burden on indirectly related parties who do not bear culpability, and frequently have also been harmed by the fraud.




Source: http://goingconcern.com/2009/08/arlen-specter-not-pandering-to.php