5 ‘assisting,’ ‘participating in,’ ‘complicity in’ and similar synonyms . . . all fall within the prohibitive bar of Central Bank.” Shapiro v. Cantor, 123 F.3d 717, 720 (2d Cir. 1997). If anything, “scheme” liability is more expansive than aiding and abetting. Mere “participation” in a scheme that has some “effect” is easier to plead and prove than “substantial assistance.” Petitioner and its amici effectively admit the derivative essence of “scheme” liability. They admit that reliance and causation are satisfied in “scheme” cases not by reference to the conduct of a commercial counterparty such as respondents—whose conduct was unknown to the market— but rather because the issuer’s “financial statements caused the price of [its] stock to be inflated and the purchasers of the stock were accordingly damaged.” Pet. Br. at 38. See also Regents Br. at 16 (seeking damages for “falsifying the financial statements of a public company”). Decisions adopting “scheme” liability also have necessarily premised reliance and causation on the statements of the issuer rather than the unreported conduct of the counterparty. See, e.g., Simpson v. AOL TimeWarner Inc., 452 F.3d 1040, 1050-52 (9th Cir. 2006) (“the scheme [to defraud would not] be complete until the misleading information is disseminated into the securities market”), petition for cert. filed, 75 U.S.L.W. 3236 (U.S. Oct. 19, 2006) (No. 06-560); In re Parmalat Sec. Litig., 376 F. Supp. 2d 472, 509-10 (S.D.N.Y. 2005) (purpose and effect of scheme was “to allow Parmalat to make such misrepresentations”). The very “purpose and effect” test is derivative. To avoid liability for acting recklessly, the counterparty is expected to investigate the “purpose” and accounting policies of the issuer. Moreover, the “effect” also depends on further action by an issuer: if the issuer has a change of heart and accounts correctly for the transaction, the conduct and intent of the commercial counterparty are precisely the same—but there would be no improper effect and thus no “scheme” liability.
