Publications

III.  Overview of Legal Principles

A.   The Prevailing Legal Standard.

In the scheme of industry life, courts have consistently held that a clearing broker who performs ministerial duties is not liable to the introducing broker's customer for losses suffered by the introducing broker's actions, Ross v. Bolton, 904 F.2d 819 (2d Cir. 1989); Carlson v. Bear, Stearns & Co., Inc., 906 F.2d 315 (7th Cir. 1990); Dillon v. Milatano, 731 F. Supp. 634 (S.D.N.Y. 1990); Connolly v. Havens, 763 F. Supp. 6 (S.D.N.Y. 1991). However, a clearing broker may suffer liability exposure when it moves beyond performing its routine clearing functions or pressures the introducing broker to act wrongfully. See In re Blech Securities Litigation, 961 F. Supp. 569 (S.D.N.Y. 1997) ("Blech III"). Typically then, clearing firm liability cases turn on detailed factual analyses; and within the federal court arena, significant motions practice abounds in this area of securities law.

B.   Recovery Theories and Illustrative Cases.

Clearing firm liability cases usually allege claims arising under Section 10(b), Rule 10b-5, Section 20(a), respondeat superior, fraud, negligence and breach of fiduciary duty. Selected cases are briefly reviewed below.

Publications Menu

• Developments in Indemnification and Advancement Rights
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• The U.S. Patriot Act
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• New CFTC Flexibility for Hedge Fund Managers
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• Rise and Fall of a Rock Star
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• Liability Of Clearing Firms
  • Introduction
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  • The Role of Clearing Firms
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  • Overview of Legal Principles
    • The Prevailing Legal Standard
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    • Recovery Theories and Illustrative Cases
      • Liability Under Section 10(b) and Rule 10b-5
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      • Former Aiding and Abetting Liability
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      • Controlling Person Liability under Section 20(a)
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      • Common Law Claims
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  • The Arbitration Arena
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  • Proposed SRO Rules
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  • Conclusion