Third Circuit Joins Second in Split re Whether the SEC Is a “Person” Under Section 20(a) of Securities Exchange Act

Per SEC v. J.W. Barclay & Co., Inc., --- F.3d ----, 2006 WL 861177 (3d Cir. Apr. 5 2006):

We join the Second Circuit and hold that the SEC is a “person” within the meaning of § 20(a). See First Jersey, 101 F.3d at 1472. We therefore decline to join the Sixth Circuit's contrary holding that the SEC is not a “person” under § 20(a). See Coffey, 493 F.2d at 1318.

The Sixth Circuit in Coffey reasoned that because § 20(b) of the Exchange Act “sets forth the standard of lawfulness to which a controlling person must conform, on penalty of liability in injunction to the SEC or criminal prosecution,” § 20(a) was meant only “to specify the liability of controlling persons to private persons suing to vindicate their interests.” Id. Accordingly, the Sixth Circuit held that the SEC was “not a person under section 20(a)” and that the SEC could not rely on § 20(a) when seeking personal injunctions against corporate officials for a corporation's alleged violations of the securities laws. Id.

Regardless of the merits of this reasoning in 1974, the Sixth Circuit's conclusion that the SEC is not a person under § 20(a) was severely undermined in 1975, when an amendment to the Exchange Act modified the Exchange Act's definition of “person.” See15 U.S.C. § 78c(a)(9) (1975 Amendments). As of 1974, the Exchange Act had defined a “person” as “an individual, a corporation, a partnership, an association, a joint stock company, a business trust, or an unincorporated organization.” The 1975 amendment, however, explicitly expanded the scope of the Exchange Act's definition of a “person” so as to include governments and government agencies, changing it to “a natural person, company, government, or political subdivision, agency, or instrumentality of a government.” Id.

Accordingly, while the Sixth Circuit's limitation of § 20(a) claims to “private persons” may have been supported by the Exchange Act's statutory definition of “person” as of 1974, the Exchange Act's current statutory definition of “person” explicitly includes government agencies such as the SEC. Consequently, we agree with the Second Circuit that the plain language of 15 U.S.C. 78c(a)(9), as amended in 1975, requires our holding that the SEC is a “person” who may bring a claim under § 20(a). See First Jersey, 101 F.3d at 1472.


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