Section 20(b) of the Exchange Act makes it unlawful for a person to effect a securities fraud through another person. Sometimes referred to as the “ventriloquist dummy” statute, it has rarely been invoked in securities cases. In the Supreme Court’s recent Janus decision, however, the Court limited Section 10(b) securities fraud liability to persons who had “ultmate authority” over the alleged false statement. Not surprisingly, Janus has revived interest in Section 20(b) as a potential vehicle for claims against secondary actors.
The New York Law Journal has an interesting column (Sept. 29 – subscrip. req’d) on the potential application of Section 20(b). As a threshold matter, the authors note that “[t]here is so little authority on Section 20(b) that is is not even definitive that it affords a private right of action.” Even assuming that a private right of action exists, plaintiffs will have to demonstrate both the existence of any underlying violation and that “the controlling person ‘knowingly used’ the controlled entity to violate the securities laws.”
The 10b-5 Daily 