Today the Ninth Circuit Court of Appeals issued an opinion stating that an attorney who undertakes to make representations to prospective purchasers of securities can be liable for securities fraud under federal law if the representations turn out to be false.
In Thompson v. Paul, the defendant attorney represented a company that was preparing to issue stock to plaintiff as part of a litigation settlement. Plaintiff claimed she agreed to accept the stock based on a representation by the attorney that the company's CEO was not under criminal investigation. When the CEO was indicted three days later, the stock price dropped and plaintiff sued the attorney for securities fraud. The attorney argued that he owed no duty to plaintiff, but only to his client, the issuer of the stock. The Ninth Circuit disagreed, holding that the attorney-client relationship does not shield an attorney from liability to third parties under Section 10(b) of the Securities Exchange Act.
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