Sunday, October 09, 2011

Reliance Requirement Hampers Enforcement, NASAA Argues

NASAA has urged the Supreme Court of Oregon to overturn a lower court decision which has read a reliance requirement into the anti-fraud provision of the Oregon Securities Law. Filing an amicus brief on behalf of the State of Oregon in State ex rel. Oregon State Treasurer v. Marsh & McLennan Cos., NASAA argued that the lower court decision is contrary to both the plain language of the statute and to the requirements of the Uniform Securities Act, the model statute upon which the Oregon law is based. If allowed to stand, NASAA contended, the Court of Appeals’ decision will weaken investor protection by threatening the enforcement powers of the Oregon Division of Finance and Corporate Securities (Securities Division).

NASAA noted that the petitioner in the case, the State of Oregon, had brought a private cause of action on behalf of the Oregon Public Employee Retirement Fund for a violation of Section 59.135 of the Oregon Securities Law. Unlike common law fraud, securities fraud claims under Section 59.135 have been held not to require reliance. Nevertheless, the Court of Appeals concluded that the “reliance-laden language of Section 59.135 implicitly required the state to plead actual reliance on the respondent’s violations of Section 59.135.

Although the case does not involve an enforcement action by the Securities Division, NASAA observed that the Court of Appeals’ holding interpreted the very same language of the statute that the Securities Division uses to bring enforcement actions. Thus, NASAA argued, the Oregon courts could be forced to find in future cases that the Securities Division must provide reliance in order to prevail in an enforcement action brought under Section 59.135. This would be an unprecedented, unwarranted and harmful development, NASAA stated, noting that no other state or federal securities regulator is required to plead reliance in actions brought for violations of analogous statutes.

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