Liabilities of Lawyers Under the Federal Securities Laws

THE SEC IS TRYING TO APPLY TO ATTORNEYS A LOWER STANDARD FOR HOLDING SOMEONE LIABLE UNDER RULE 10B-5, THAT IS, THAT MERE NEGLIGENCE WITHOUT PROOF OF SCIENTER OR GUILTY KNOWLEDGE OR RECKLESS DISREGARD, MAY BE SUFFICIENT TO JUSTIFY IMPOSITION OF AN INJUNCTION. BECAUSE OF THE SEVERE DIRECT AND INDIRECT ADVERSE CONSEQUENCES OF AN INJUNCTIVE DECREE - PARTICULARLY AGAINST A PROFESSIONAL - IT IS SUGGESTED THAT THIS TREND IN THE LAW IS WRONG AND OUGHT TO BE REVERSED. PREFERABLE TO AN INJUNCTIVE DECREE WOULD BE THE IMPOSITION OF A MONEY JUDGMENT IN A PRIVATE DAMAGE ACTION. IN SUCH AN ACTION, MOST OF THE COURTS WILL REQUIRE PROOF OF AT LEAST SOME SEMBLANCE OF SCIENTER OR RECKLESS DISREGARD BEFORE THEY WILL ALLOW RECOVERY. MERE NEGLIGENCE WILL NOT SUFFICE. IN FACT, THE STANDARDS OUGHT TO BE THE SAME UNDER RULE 10B-5 WHETHER THE RELIEF SOUGHT IS AN INJUNCTION OR MONEY DAMAGES.