A new ruling Friday by the state's high court will bar victims of securities fraud from legally pursuing those who helped the people who defrauded them.
In a unanimous decision, the Supreme Court said there is no longer a right in this state to sue someone for aiding and abetting others in defrauding people. The justices said a strict reading of the wording of the Arizona Securities Act says it can be used only against those who "directly participated in the scheme.''
Attorney General Tom Horne said the ruling will have an impact.
"It will make it harder to recover'' what has been stolen, he said.
"Usually its these other firms that have assets,'' Horne explained. "Very often, the actual perpetrator doesn't have any assets left.''
What makes Friday's ruling all the more significant is that it overturns the precedent the court set more than 30 years ago when it interpreted the exact same law.
But Justice John Pelander, writing the decision, pointed out that the U.S. Supreme Court, in a 1994 ruling, said victims cannot use the federal Securities Exchange Act to sue those who do not themselves engage in manipulative or deceptive practices but only assist others in doing that.
Pelander said this case is the first to reach the Arizona Supreme Court since that ruling.
He said the Arizona law "tracks the language'' of federal law. And based on that, Pelander and his colleagues concluded their 1979 decision allowing such suits is no longer good law.
Horne said Friday's ruling puts the issue into the hands of state lawmakers. He said it is up to them whether to add the words to the Arizona Securities Act that Pelander said are missing.
Rebecca Wilder, spokeswoman for the Arizona Corporation Commission, which regulates securities in the state, said staffers are still studying the ruling for its implications.
But the commission was so concerned about the issue that its attorneys filed their own legal pleadings with the state's high court asking the justices to leave Arizona caselaw the way it is -- or, now, the way it was -- calling it "critical for investor protection.''
"It allows injured investors the possibility to recover against those who assisted in harming them,'' wrote commission attorney Julie Coleman. "Furthermore, secondary liability, including aider-abettor liability, for violations of the (state) act plays an important role in the commission's own enforcement actions.''
Coleman said there are several prime examples of how investors will be hurt.
One involves the failure of Baptist Foundation of Arizona.
Those lawsuits involved claims the foundation operated a Ponzi scheme, enticing new investors while using that money to make it look as if its holders were secure. The foundation eventually declared bankruptcy in 1999 after the commission ordered it to stop selling investments.
The accounting firm of Arthur Andersen was accused of helping the foundation misrepresent its financial condition by giving it a clean bill of health.
In a 2002 deal, the accounting firm agreed Friday to pay a record $217 million to settle all claims against it by the state and investors in the failure of the foundation.
That deal also required two top officers at Andersen's Arizona operations to give up their accounting licenses. And it required that the Phoenix office be monitored for two years, at company expense.
In another case, the commission went after attorney Gregory Groh in 2007, saying he aided and abetted in the sale of unregistered securities to his law clients by an insurance salesman and American Elder Group.
Coleman said Groh allowed the salesman to go to the homes of his estate planning clients under the guise of being a paralegal. Then Groh authorized the salesman to offer annuities and other insurance products to his law clients in exchange for a commission.
Pelander said the court, in interpreting statutes, must do that in a way to follow the intent of the Legislature.
He said that's easy when the plan text is clear. But in this case, Pelander said the justices must try to ascertain what lawmakers were trying to do, considering the effects and consequences, along with its spirit and purpose.
Here, Pelander wrote, nothing in the Arizona Securities Act specifically authorizes claims or liability for aiding and abetting in fraud. In contrast, he wrote, lawmakers have written other statutes that create liability for aiding and abetting in their commission, ranging from insurance fraud to obscenity.
"The Legislature, not the courts, should define the scope of liability under that statutory scheme,'' the justice wrote.
Pelander conceded that Friday's ruling overturns the high court's earlier conclusions. But he said that U.S. Supreme Court decision on the parallel federal securities law provides "sufficient justification'' to reverse course.