AmLaw reports:
Securities law bloggers have been spilling virtual ink all week on the Second Circuit's July 22 ruling in Securities and Exchange Commission v. Dorozhko, which permits the SEC to proceed with a fraud case against a computer hacker, even though the hacker had no fiduciary duty to the company whose shares he traded. We feel kinda dumb for not covering the ruling until now, but on the other hand, the week's delay has crystallized the key issue in Dorozhko: Is the Second Circuit abetting SEC overreaching?
"The Second Circuit is permitting the SEC to enforce in territory where they haven't been lawfully permitted before," Dorozhko's lawyer, Charles Ross of Charles A. Ross & Associates, told us Friday. "The opinion flies in the face of 75 years of U.S. Supreme Court precedent."
Normally, we might discount Ross's view as somewhat biased, but he's not alone in questioning the Second Circuit's reasoning. UCLA professor Stephen Bainbridge called the ruling "egregious." Amy Greer of Reed Smith, guest-blogging at Securities Docket, wondered if the appellate court had "[stepped] onto that famous slippery slope." And White Collar Crime Prof Blog founder Peter Henning, writing at The Wall Street Journal's Law Blog, said, "The SEC could well start channeling its insider trading cases into the affirmative misrepresentation category to free itself from having to show a breach of duty by the defendant."
