Two firms that sued a funding group for selling fraudulent securities were found not liable for failing to sue the accounting firm Arthur Andersen as well. The firms found themselves facing a legal malpractice suit nearly four years after the funding group’s insurance company settled for $125 million.
A federal appeals court ruled the firms had sufficient reason for not suing Arthur Andersen in addition to the funding group.
The court noted in particular that the 1997 suit followed by only three years the U.S. Supreme Court’s landmark decision in Central Bank of Denver v. First Interstate Bank of Denver, which held that third-party “aiders and abettors” could not be sued for securities fraud. This decision had created “serious doubt as to auditor securities liability,” McLaughlin wrote.