24 Second, Central Bank held that defendant-by-defendant reliance is an essential element of primary liability: [R]espondents’ argument would impose 10b-5 aiding and abetting liability when at least one element critical for recovery under 10b-5 is absent: reliance. A plaintiff must show reliance on the defendant’s misstatement or omission to recover under 10b-5. Were we to allow the aiding and abetting action proposed in this case, the defendant could be liable without any showing that the plaintiff relied upon the aider and abettor’s statements or actions. Allowing plaintiffs to circumvent the reliance requirement would disregard the careful limits on 10b-5 recovery mandated by our earlier cases. Id. at 180 (emphasis added; citations omitted). As we show infra, at 28-29, “scheme” liability cannot be reconciled with the defendant-by-defendant reliance required by Central Bank. Less than a month after Central Bank was issued on April 19, 1994, then-SEC Chairman Levitt told Congress that Central Bank required defendant-by-defendant reliance under § 10(b): “As the Supreme Court emphasized in Central Bank of Denver, a private plaintiff under Rule 10b-5 must show, defendant by defendant, that the plaintiff reasonably relied on the defendant’s misstatement or omission.” Abandonment of the Private Right of Action for Aiding and Abetting Securities Fraud/Staff Report on Private Securities Litigation: Hearing Before the Subcomm. on Sec. of the S. Comm. on Banking, Hous., & Urban Affairs, 103d Cong. 51 (1994) (statement of Arthur Levitt, Chairman, SEC) (emphasis added). And, former SEC Chairman David Ruder told Congress that “[a]ctive assistance to securities law fraud by accountants, banks, lawyers and others who cannot be classified as participants or controlling persons would no longer be actionable.” Id. at 107. Congress chose not to overrule either Central Bank’s definition of the scope of § 10(b) liability or its requirement of defendant-by-defendant reliance.
