Bateman Eichler, Hill Richards, Inc. v. Berner

Background

A group of individual investors sued a broker, a company president, the company, and the broker’s employer after buying over-the-counter stock based on alleged promises of inside information. The investors say the broker lied about material, nonpublic deals and urged them to buy, the stock later collapsed, and they suffered large trading losses. A federal trial court dismissed the suit because it found the investors had acted wrongfully and applied the common-law equal-fault defense to bar recovery.

Reasoning

The core question was whether that common-law equal-fault defense (historically called in pari delicto) should block private damage claims under the federal securities laws. The Court reviewed earlier decisions limiting that defense in other federal statutes and emphasized that private lawsuits are an important tool to enforce securities law. It held that the equal-fault defense cannot be used broadly to shield insiders and brokers; it applies only in narrow situations where, because of the plaintiff’s own direct actions, the plaintiff bears at least substantially equal responsibility for the violation.

Real world impact

As a result, most defrauded investors can pursue damages against insiders and brokers who induced purchases by false or misleading claims. The ruling keeps private suits as a central enforcement mechanism alongside the SEC, while still allowing courts to bar recovery in clear cases of near-equal, direct wrongdoing by the investor. The decision affirms the appeals court’s judgment rejecting a broad application of the defense.