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Authors

Bryan J. Hall

Document Type

Note

Abstract

(Excerpt)

This Note proceeds in three parts. Part I discusses the development of the modern global structure of accounting firms and analyzes recent district court decisions in which accounting firms have not been held liable for audits performed by affiliated accounting firms. Part I also considers the implications of three Supreme Court decisions that rejected secondary liability under section 10(b) of the Securities Exchange Act. Part II explores the facts leading up to Parmalat’s bankruptcy and the district court’s decision to apply agency and control liability to global and U.S. accounting firms. Part III argues that the court in Parmalat erred in applying common law agency liability to accounting firms under section 10(b) for the actions of legally separate affiliated firms. Rather, the court should have applied the secondary liability provision that Congress expressly provided in section 20(a) of the Securities Exchange Act. Turning to section 20(a), Part III argues that the more rigorous actual control of the audit standard should apply to secondary liability claims against accounting firms, rather than the less rigorous power to control standard. Finally, Part III applies the actual control of the audit standard to the facts of Parmalat and demonstrates how, under this standard, public policy and organizational considerations are adequately addressed, while providing for meaningful recovery against accounting firms that actually control the audit at issue in the litigation.

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