## Facts

- A Colorado public building authority issued approximately $26 million in municipal bonds in 1986 and 1988 to fund public improvements and real estate development.
- Central Bank of Denver, N.A. served as indenture trustee under the bond indenture.
- The bonds were secured by assessment liens and included a “160% value” covenant requiring pledged land value to be at least 160% of outstanding principal and interest.
- Central Bank received information suggesting the appraisal might not satisfy the covenant and agreed to delay an independent appraisal review until after the next interest payment date.
- The issuer later defaulted on the bonds before the independent review occurred.
- Bond purchasers sued multiple defendants for securities fraud under §10(b) and Rule 10b-5 and asserted Central Bank was secondarily liable for aiding and abetting the alleged fraud.

## Issues

1. Whether §10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 create a private civil cause of action for aiding and abetting securities fraud.
2. Whether the statutory language (“directly or indirectly,” “use or employ … any manipulative or deceptive device”) reaches defendants who provide assistance but do not themselves commit a manipulative or deceptive act.

## Decision

- The Supreme Court reversed the Tenth Circuit and reinstated summary judgment for Central Bank.
- The Court held (5–4) that private plaintiffs may not maintain aiding-and-abetting claims under §10(b) and Rule 10b-5.
- The Court reasoned that §10(b) targets only those who themselves “use or employ” a manipulative or deceptive device, including making a material misstatement or omission or committing a manipulative act.
- The phrase “directly or indirectly” was read to cover committing the prohibited act through intermediaries, not to create secondary liability for those who merely assist.
- The Court relied on the structure of the securities laws, noting Congress expressly provided aiding-and-abetting liability elsewhere but not in §10(b).
- Because the private §10(b) action is implied, the Court declined to extend it beyond the statutory text.
- The Court emphasized that secondary actors (e.g., banks, lawyers, accountants) may still face private §10(b) liability as primary violators if their own deceptive conduct involves a material misstatement/omission or manipulative act on which investors relied.

## Legal Principles

- Private civil liability under §10(b) and Rule 10b-5 does not extend to aiding and abetting; only primary violators are subject to private suit.
- “Directly or indirectly” in §10(b) does not itself authorize aider-and-abettor liability; liability turns on whether the defendant engaged in the prohibited manipulative or deceptive conduct.
- Courts should be cautious in expanding an implied private right of action beyond the statute’s terms.
- In private Rule 10b-5 actions, plaintiffs must show reliance on the defendant’s own material misstatement or omission (or other deceptive conduct) to recover.

## Conclusion

The Court confined private §10(b)/Rule 10b-5 actions to defendants who themselves commit a manipulative or deceptive act, rejecting private aider-and-abettor liability and requiring plaintiffs to plead and prove primary deceptive conduct and reliance as to each defendant.


Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164 (1994)