SECURITIES | 2026-10-27

No Private Aiding-and-Abetting or Scheme Liability Under Rule 10b-5: Central Bank and Stoneridge Explained for California Investors

Private investors cannot sue secondary actors — accountants, lawyers, banks, or business partners — merely for helping a company commit securities fraud. The Supreme Court closed that door in Central Bank (1994) and reinforced it in Stoneridge (2008). This guide explains the rule, the reliance requirement at its core, and what remains of secondary liability for California shareholders.

When a public company commits securities fraud, investors often want to hold not only the company but everyone who helped — the accountants who signed off, the lawyers who drafted the disclosures, the banks that structured the deals, and the business partners whose sham transactions inflated the num

Securities fraud is rarely the work of a single actor. A fraudulent financial statement passes through auditors; a misleading offering is drafted by lawyers and underwritten by banks; inflated revenue is often generated by sham transactions with outside vendors or customers. When the fraud collapses and the stock craters, injured investors look for deep-pocketed defendants, and the professionals and counterparties who facilitated the fraud are obvious targets. Yet federal law draws a sharp line between primary violators, who can be sued privately, and secondary actors, who largely cannot. This article explains how the Supreme Court drew that line in Central Bank and Stoneridge, why the reliance element is the key, and what avenues remain.

The §10(b) Private Right of Action

Section 10(b) of the Securities Exchange Act of 1934 and the SEC's Rule 10b-5 prohibit the use of any manipulative or deceptive device in connection with the purchase or sale of a security. Congress did not expressly create a private lawsuit to enforce §10(b); the courts implied one over decades of decisions. Because the right of action is judicially implied rather than written by Congress, the Supreme Court has repeatedly emphasized that its scope must be defined with care and cannot be expanded beyond what Congress would have intended. A private 10b-5 plaintiff must prove six elements: a material misrepresentation or omission, scienter (intent or recklessness), a connection with a securities transaction, reliance, economic loss, and loss causation. The reliance element — the requirement that the investor relied on the defendant's deception — turns out to be decisive in the secondary-actor cases.

Central Bank of Denver (1994): No Aiding-and-Abetting Liability

In Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164 (1994), bondholders sued a bank that served as indenture trustee, claiming it aided and abetted the bond issuer's fraud by delaying an independent appraisal of the collateral. The question was whether a private plaintiff could sue a defendant who did not itself make a misstatement but assisted one who did. The Supreme Court held no. The text of §10(b) prohibits only the making of a manipulative or deceptive device; it says nothing about aiding and abetting. Because the statute does not reach those who merely assist a violation, and because the private right of action cannot extend beyond the statutory text, the Court held that there is no private aiding-and-abetting liability under §10(b). A secondary actor can be liable only if it committed a primary violation — that is, only if it did something that itself satisfies every element of a 10b-5 claim.

Congress's Response: SEC Enforcement, Not Private Suits

Congress reacted to Central Bank in the Private Securities Litigation Reform Act of 1995 (PSLRA). Rather than restore a private aiding-and-abetting action, Congress added §20(e) of the Exchange Act (15 U.S.C. §78t(e)), which authorizes the Securities and Exchange Commission — but not private plaintiffs — to pursue those who knowingly or recklessly provide substantial assistance to a primary violator. This deliberate choice, giving the enforcement tool to the SEC alone, confirmed Central Bank's holding for private litigation and became a foundation of the Court's later reasoning in Stoneridge. The practical result is a two-track system: the SEC can reach aiders and abettors; private investors generally cannot.

Stoneridge (2008): No "Scheme Liability" End-Run

Plaintiffs' lawyers sought to work around Central Bank by recasting secondary actors as primary violators under a "scheme liability" theory, relying on the parts of Rule 10b-5 that prohibit deceptive acts and practices, not just misstatements. In Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148 (2008), cable-equipment vendors had entered into sham transactions that let a cable operator, Charter, inflate its reported revenue. Investors sued the vendors directly, arguing they participated in a fraudulent scheme. The Supreme Court rejected the claim. The vendors made no public statements, had no duty to disclose to Charter's investors, and their deceptive conduct was not communicated to the securities market. As a result, investors could not have relied on the vendors' conduct. Without reliance, there is no 10b-5 claim, and "scheme liability" could not bridge the gap.

Reliance Is the Linchpin

Both cases turn on reliance. A private 10b-5 plaintiff must show that it relied on the defendant's deception in deciding to buy or sell. The Court recognizes only two ways to presume reliance without proving it transaction-by-transaction: the Affiliated Ute presumption, which applies to omissions by a defendant with a duty to disclose, and the fraud-on-the-market presumption from Basic Inc. v. Levinson, 485 U.S. 224 (1988), which applies when a defendant makes a public misstatement that is incorporated into an efficient market price. A secondary actor who makes no public statement and has no duty to disclose fits neither presumption. Investors cannot have relied on conduct they never knew about. That is why the reliance element, more than any other, confines the private action to those whose deception actually reached the market.

What Counts as a Primary Violation After Central Bank

Central Bank does not immunize professionals and counterparties entirely; it channels liability to primary violations. A secondary actor becomes a primary violator — and can be sued privately — when its own conduct satisfies every 10b-5 element, including a material misrepresentation on which the market relied. The boundaries of "primary" were later sharpened in Janus Capital Group v. First Derivative Traders, 564 U.S. 135 (2011), which held that only the person with ultimate authority over a statement — its content and whether and how to communicate it — "makes" the statement for purposes of Rule 10b-5(b). An investment adviser that drafted a mutual fund's prospectus did not "make" the statements in it because the fund, a separate legal entity, had ultimate authority. Janus thus narrows who can be a primary violator for misstatements, reinforcing the Central Bank line.

The Narrow Window Left by Lorenzo

The Supreme Court revisited the misstatement-versus-scheme boundary in Lorenzo v. SEC, 587 U.S. 71 (2019). Lorenzo forwarded emails containing false statements drafted by his boss; because he did not have ultimate authority over the content, he did not "make" the statements under Janus. But the Court held he could still be liable under the scheme provisions of Rule 10b-5(a) and (c) for disseminating false statements he knew to be false. Lorenzo was an SEC enforcement action, and the Court was careful to note the reliance concerns that limit private scheme claims under Stoneridge. The upshot for private plaintiffs is that scheme liability remains tightly constrained by the reliance requirement, even as the SEC retains broader reach.

Controlling-Person Liability Still Exists

Central Bank eliminated private aiding-and-abetting liability, but it did not touch controlling-person liability, which Congress wrote directly into the statute. Under §20(a) of the Exchange Act (15 U.S.C. §78t(a)), a person who controls a primary violator can be held jointly and severally liable, subject to a good-faith defense. Controlling-person liability is a statutory secondary-liability theory that survives because Congress expressly created it — unlike the judicially-implied aiding-and-abetting theory the Court rejected. For investors, this means officers, directors, and parent entities that control a violating company remain potential defendants even though the professionals who merely assisted the fraud do not.

Why the Line Matters for California Investors

California is home to vast numbers of public-company shareholders, institutional investors, and pension funds, and California federal courts see a steady stream of 10b-5 litigation. The Central Bank–Stoneridge line shapes those cases at the pleading stage. A complaint that names auditors, outside counsel, or vendors as defendants on an aiding-and-abetting or scheme theory will usually be dismissed unless the plaintiff can allege that each defendant itself made a material misstatement that reached the market and on which investors relied, or that the defendant controlled a primary violator. Framing the claim against the right defendants, on a theory that survives these decisions, is often the difference between a viable case and an early dismissal.

State-Law and Other Alternatives

Investors foreclosed from a federal aiding-and-abetting claim sometimes have alternatives. California recognizes common-law aiding-and-abetting of fraud and breach of fiduciary duty in some contexts, and the California Corporate Securities Law of 1968 (Corporations Code §25400 et seq. and §25500 et seq.) provides its own remedies, though it has its own limits and reliance-type requirements. Claims against auditors and other professionals may also sound in professional negligence or negligent misrepresentation, subject to privity and duty constraints. These theories are not substitutes for a federal 10b-5 claim and carry their own hurdles, but they can matter where the secondary actor's conduct would otherwise escape private accountability. Whether any applies is a fact-specific question for counsel.

Frequently Asked Questions

Can I sue the accountants or lawyers who helped a company commit securities fraud?

Generally not on an aiding-and-abetting theory. Under Central Bank v. First Interstate (1994), there is no private aiding-and-abetting liability under §10(b) and Rule 10b-5. You can sue a professional only if its own conduct was a primary violation — for example, if it made a material misstatement on which the market relied.

What is "scheme liability," and why did it fail in Stoneridge?

Scheme liability is an attempt to sue secondary actors under the parts of Rule 10b-5 prohibiting deceptive acts and practices. In Stoneridge (2008), the Court rejected it where the defendants' conduct was not disclosed to the market, because investors could not have relied on conduct they never knew about. No reliance means no private claim.

Why is reliance so important?

Reliance is one of the six elements of a private 10b-5 claim. Investors can presume reliance only through the Affiliated Ute presumption (for omissions by a defendant with a duty to disclose) or the fraud-on-the-market presumption from Basic v. Levinson (for public misstatements). A secondary actor who makes no public statement fits neither, so reliance cannot be shown.

Did Congress overrule Central Bank?

No. In the PSLRA of 1995, Congress added §20(e) of the Exchange Act, which lets the SEC — but not private plaintiffs — pursue aiders and abettors. That choice confirmed Central Bank's rule for private litigation while giving the enforcement tool to the SEC.

Can the SEC still sue aiders and abettors?

Yes. The SEC can pursue those who knowingly or recklessly provide substantial assistance to a primary violator under §20(e) (15 U.S.C. §78t(e)). Lorenzo v. SEC (2019) also confirmed the SEC can reach someone who disseminates statements he knows are false, even if he did not "make" them under Janus.

Who counts as a "primary violator" after Janus?

For misstatements, Janus Capital Group v. First Derivative Traders (2011) holds that only the person with ultimate authority over a statement — its content and whether and how to communicate it — "makes" it under Rule 10b-5(b). That narrows who can be sued privately for a misstatement.

Is controlling-person liability still available?

Yes. Central Bank did not disturb §20(a) controlling-person liability, which Congress wrote into the statute. A person who controls a primary violator can be jointly and severally liable, subject to a good-faith defense. That theory survives because it is statutory, unlike judicially-implied aiding and abetting.

Are there state-law alternatives in California?

Sometimes. California recognizes common-law aiding-and-abetting of fraud or breach of fiduciary duty in certain contexts, and the Corporate Securities Law of 1968 provides its own remedies. Claims against professionals may also sound in negligent misrepresentation. Each carries its own limits, so whether any fits is a fact-specific question for counsel.

Pleading the Claims That Survive

Because the secondary-actor avenues are largely closed, a private plaintiff must build the strongest possible primary-violation or controlling-person case against the defendants who remain. Two heightened requirements govern. First, the PSLRA demands that the complaint plead with particularity facts giving rise to a strong inference of scienter; under Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007), that inference must be cogent and at least as compelling as any opposing innocent inference. Second, under Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005), the plaintiff must plead and prove loss causation — that the revelation of the truth, not merely an inflated purchase price, caused the economic loss. These requirements apply to the primary violators and controlling persons the plaintiff can reach, and they are frequently where cases are won or lost at the motion-to-dismiss stage. A complaint that names the right defendants but fails these pleading standards fares no better than one that names the wrong defendants.

Secondary Actors and SEC Enforcement Exposure

The fact that private investors cannot sue a secondary actor does not mean the actor faces no risk. The SEC retains the power to pursue aiders and abettors under §20(e), and the Department of Justice can prosecute willful violations criminally. Professionals and counterparties who facilitate a fraud may therefore be beyond the reach of a private 10b-5 suit yet squarely within the government's. For companies, auditors, law firms, and banks evaluating their exposure, the Central Bank–Stoneridge line is only half the picture: the government enforcement track remains fully open, and the standards there — including the Lorenzo dissemination theory — are broader than what private plaintiffs can invoke. Sound risk assessment accounts for both tracks, because conduct that escapes private liability can still produce an SEC action, a cease-and-desist order, disgorgement, or an injunction. The distinction also affects settlement dynamics: a secondary actor that cannot be held privately liable has less incentive to contribute to a class settlement, which can concentrate the recovery on the primary violators and controlling persons who remain in the case. Plaintiffs’ counsel weigh this when deciding whom to name and how to allocate litigation resources, and defendants weigh it when assessing whether a government inquiry, rather than private litigation, is the more serious exposure. In short, the practical consequences of the Central Bank–Stoneridge line extend well beyond the pleading stage into how securities cases are valued and resolved, and both plaintiffs and defendants ignore that reality at their peril when they map out litigation and settlement strategy from the outset.

Related Guides

For related reading, see our guide on §20(a) controlling-person liability for securities violations and our securities and corporate governance practice overview. Identifying which defendants can actually be sued — and on what theory — is the first step in any securities-fraud evaluation.

Speak With a California Securities Attorney

If you are an investor evaluating a securities-fraud claim, or a company or professional assessing exposure under §10(b) and Rule 10b-5, the line drawn by Central Bank and Stoneridge will shape your case. Trembach Law Firm analyzes whether a defendant is a primary violator, a controlling person, or a secondary actor beyond the reach of private suit, and advises on SEC enforcement risk. Call (818) 514-7680 to discuss your securities matter with an attorney. Anatolii Trembach holds an LL.M. and is admitted to the California Bar.

This article provides general information about federal securities law and is not legal advice. Securities-fraud claims are fact-specific and governed by evolving case law. Consult a qualified securities attorney about your particular situation.

Contact Trembach Law Firm at (818) 514-7680 for a confidential consultation.

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