2.   Former Aiding and Abetting Liability.

In the past, another favored claim against clearing firms was that of aiding and abetting. In Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 114 S. Ct. 1439, 128 L. Ed. 2d 119 (1994), the Supreme Court concluded that no private right of action existed against an aider and abettor under Section 10(b). However, earlier cases exemplify the efforts undertaken by plaintiffs to nail clearing firms with liability. For example, in Ross, supra, the clearing firm, having grown concerned with its collateral position, implemented trading restrictions, limited margin loans and directed its introducing broker to reduce its inventory position in a particular stock. Ross's subsequent lawsuit asserted inter alia aiding and abetting liability against the clearing firm. The court remarked that absent a fiduciary duty owed to him, Ross needed to assert a primary securities violation of which the clearing firm was aware and substantially participated in perpetrating. It reiterated that absent that duty, there could be no aiding and abetting liability. Finding that Ross failed adequately to allege the clearing firm's scienter and actual intent to aid the primary fraud, the court dismissed the complaint, id. at 823. 

Stander v. Financial Clearing & Services Corp., 730 F. Supp. 1282 (S.D.N.Y. 1990), rejected the argument that the clearing firm's ongoing honoring of risky trades amidst unsatisfied margin calls in a conservative-oriented account vested the firm with actual knowledge of the introducing broker's fraud. The court reiterated the general rule that where fiduciary duty is absent, the claimant must allege actual knowledge of the fraudulent activity by the alleged aider and abettor. Though failing to state facts evidencing actual knowledge, Stander argued that the clearing firm should be held to a recklessness standard, emphasizing that the firm did in fact have fiduciary responsibility under NYSE Rule 405. The court rejected this contention, observing that the firm's fully disclosed clearing agreement allocated responsibility to the introducing broker to insure that customer trading activity complied with all applicable rules, id. at 1287. Ultimately, the court characterized Stander's claim as being an argument that by clearing and servicing the account pursuant to its agreement, the firm substantially assisted the introducing broker's illegal activities: "The Court has already noted that a clearing broker cannot be held liable as an aider and abettor simply because it performed its contracted-for services," id.

Last, in Connolly, supra, the plaintiffs alleged that the clearing firm knew or should have known that its introducing broker was manipulating securities transactions. Granting the firm's motion to dismiss, the court held that at best, the allegations asserted recklessness on the part of the clearing firm and not the requisite actual knowledge necessary for aider and abettor liability. Moreover, since under Ross, supra, the clearing firm had no fiduciary duty to disclose to the customer, there could be no requisite "substantial assistance."

These pre-Central Bank of Denver cases further demonstrate the continuing dominant recognition that the federal judiciary is loath to permit claims against clearing brokers that act within the scope of their ministerial activities, notwithstanding the injurious conduct of their introducing brokers.