Section 984 of the “Discussion Draft” of the new financial regulation legislation sponsored by Senate Banking Committee Chairman Christoper Dodd (D-Conn) proposes to amend the Private Securities Litigation Reform Act of 1995 (“PSLRA”) to allow investors a private right of action to sue “any person that knowingly or recklessly provides substantial assistance to another person in violation of [the Securities Exchange Act of 1934].”  In essence, the bill would legislatively overturn the U.S. Supreme Court’s decisions in Stonebridge and Central Bank of Denver, which prohibited investors from using “scheme liability” as a basis to assert causes of action against “aiders and abettors” of federal securities law violations (i.e., accountants, auditors, investment banks or lawyers, who certified financial statements or provided opinions that formed the basis for the issuer’s allegedly false and misleading statements, but did not issue any false and/or misleading statements themselves).

Senator Dodd’s bill follows closely on the heels of Senate Bill 1551, sponsored by Arlen Spector (D-Pa), which similarly permitted a private right of action for  aiding and abetting under the federal securities laws.