Controlling Person Liability

I. INTRODUCTION

From 1929 to 1933, the securities markets lost half of their value, a startling 20% of the workforce was unemployed, and productivity was 50% less than it had been in previous years. As the United States grappled with the Great Depression, it asked why such catastrophes had happened. It became apparent that the structural flaws of Wall Street—that is, its anemic self-regulation deserved a large part of the blame. Congress sought to implement legislation in the form of the Securities Act of 1933 and Exchange Act of 1934, which would prevent such a catastrophe from ever occurring again. These statutes established liability for those who commit securities fraud, and were designed to restore investor confidence in a badly shaken market. These Acts went even further, however, by creating liability for those who “control” the company behind the scenes. Section 15 of the 1933 Act and Section 20(a) of the 1934 Act established that the...