Liability of corporate officers for securities fraud

Liability of corporate officers for securities fraud

A corporation or other business entity acts only through its agents, and so a corporation's liability for securities fraud is determined by principles of agency law. In the securities context, two agency-law concepts are relevant: respondeat superior and apparent authority.

Under respondeat superior, a "master'' (employer) is liable for the torts of a "servant" (employee) done while the servant is acting within the scope of employment. However, when the servant does not act for the purpose of furthering his master's goals but is on a "frolic of his own," the master is not liable.

Under the concept of apparent authority, a principal is liable when an agent acting with apparent authority makes a statement on which another relies.The agent has apparent authority when, from the perspective of third parties, it appears that the corporation has vested the agent with authority to make the statement, whether or not the corporation actually has done so. Unlike respondeat-superior liability, a principal may be held liable for acts done by an agent with apparent authority even if the agent acts entirely for his own purposes and not for the purpose of serving the principal.