* 2nd Circuit revives case against ex-Terex CFO
* Proximate cause standard rejected
* Decision could make it easier for SEC to charge executives
By Jonathan Stempel
NEW YORK, Aug 8 A federal appeals court has made
it easier for the U.S. Securities and Exchange Commission to
allege that a defendant assisted in securities fraud, a decision
that could help the regulator bring more enforcement cases
The 2nd U.S. Circuit Court of Appeals in New York on
Wednesday revived an SEC civil case against Joseph Apuzzo, a
former chief financial officer of heavy equipment maker Terex
Corp, over his role in an alleged accounting fraud.
In doing so, the court overturned a 2010 decision by a
Connecticut federal judge that required the SEC to meet a higher
legal standard to bring so-called "aiding and abetting" claims.
Apuzzo had been accused in December 2007 of assisting in two
"sale-leaseback" transactions in 2000 and 2001 to help his
counterpart at equipment rental company United Rentals Inc
, an important Terex customer, inflate profit and
recognize revenue sooner.
The former United Rentals CFO, Michael Nolan, was sentenced
to three years probation after pleading guilty in 2007 to one
criminal count of making a false SEC filing, court records show.
He also settled a related SEC civil case.
SEC Enforcement Director Robert Khuzami in a statement said
the 2nd Circuit decision "will help us hold responsible those
who aid and assist financial frauds."
Seth Taube, a partner at Baker Botts representing Apuzzo,
said: "We are reviewing the opinion and our options given that
the decision may set forth some new theories of liability."
Jordan Thomas, a partner at Labaton Sucharow in New York and
former assistant director of the SEC enforcement division, said
the decision may "enhance the ability of the SEC to bring aiding
and abetting cases, which historically have been difficult to
bring, especially against senior executives."
Thomas said the decision may apply broadly because courts in
the 2nd Circuit, which includes New York, handle a majority of
SEC enforcement cases, and other circuit courts often give
"great weight" to the appeals court's opinions.
Labaton Sucharow specializes in securities class-action
cases, and Thomas is not involved in the Apuzzo case.
"PROXIMATE CAUSE" NOT NEEDED
Writing for a three-judge panel of the appeals court, U.S.
District Judge Jed Rakoff said the SEC can show a defendant
provided "substantial assistance" to a fraud by demonstrating
that the person associated himself with the misconduct and
through his action tried to make it succeed.
Rakoff rejected the conclusion by the lower court judge,
U.S. District Judge Alvin Thompson in New Haven, Connecticut,
that a defendant must be the "proximate" cause of harm to be
liable as an aider and abettor.
"Many if not most aiders and abettors would escape all
liability if such a proximate cause requirement were imposed,
since, almost by definition, the activities of an aider and
abettor are rarely the direct cause of the injury brought about
by the fraud, however much they may contribute to the success of
the scheme," Rakoff wrote for the panel, which returned Apuzzo's
case to the Connecticut court.
Rakoff normally sits on the U.S. District Court in
Manhattan, where he has been critical of the SEC in other cases,
but periodically hears cases on other courts.
United Rentals in 2008 agreed to pay $14 million to settle
SEC fraud charges over the suspect transactions. Terex settled
the following year for $8 million. Neither company admitted
wrongdoing, and both restated financial statements.
Representatives of both companies did not immediately
respond to requests for comment. Terex is based in Westport,
Connecticut, and United Rentals in Greenwich, Connecticut.
The case is SEC v. Apuzzo, 2nd U.S. Circuit Court of
Appeals, No. 11-696.