Second Circuit: Complaint against ex-CFO shouldn't have been dismissed

Jessica M. Karmasek Aug. 8, 2012, 3:10pm


NEW YORK (Legal Newsline) - A federal appeals court has remanded a case against a company's former chief financial officer for his role in an alleged fraudulent accounting scheme.

In its ruling Wednesday, the U.S. Court of Appeals for the Second Circuit reversed the judgment of the U.S. District Court for the District of Connecticut.

The district court had granted the motion of defendant Joseph Apuzzo to dismiss a complaint filed by the Securities and Exchange Commission against him.

The SEC alleges that Apuzzo aided and abetted securities laws violations.

Apuzzo was the chief financial officer of The Terex Corporation -- a company that manufactures equipment mostly used in the construction, infrastructure and surface to mining industries -- from October 1998 to September 2002.

United Rentals Inc. is one of the largest equipment rental companies in the world. Michael J. Nolan was its chief financial officer from its inception in September 2007 until December 2002.

According to the SEC's complaint, in late December 2000 and again in late December 2001 URI and Nolan, with Apuzzo's help, carried out two fraudulent "sale-leaseback" transactions.

These transactions were designed to allow URI to "recognize revenue prematurely and to inflate the profit generated from URI's sales," the SEC alleges.

Apuzzo sought to dismiss the complaint.

The district court granted his motion on the ground that the complaint did not meet the "substantial assistance" component of aiding and abetting liability because it failed to adequately allege that Apuzzo proximately caused the harm on which the primary violation was predicated.

In its 22-page ruling, the Second Circuit sided with the SEC, saying the complaint should not have been dismissed.

"We hold that, in SEC civil enforcement actions, the test for substantial assistance is that the aider and abettor 'in some sort associate[d] himself with the venture, that he participate[d] in it as in something that he wishe[d] to bring about, [and] that he [sought] by his action to make it succeed,'" Judge Jed Rakoff wrote for the court.

"Applying that test, we hold that the complaint plausibly alleged that Apuzzo aided and abetted the primary violation."

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