          United States Court of Appeals
                      For the First Circuit

No. 08-1172

               SECURITIES AND EXCHANGE COMMISSION,

                      Plaintiff, Appellant,

                                v.

     VIRGINIA A. PAPA, KEVIN F. CRAIN, and SANDRA G. CHILDS,

                      Defendants, Appellees.


          APPEAL FROM THE UNITED STATES DISTRICT COURT
                FOR THE DISTRICT OF MASSACHUSETTS

         [Hon. Nathaniel M. Gorton, U.S. District Judge]


                               Before
                     Boudin, Stahl and Howard,
                          Circuit Judges.


     Tracey A. Hardin, Senior Counsel, Securities and Exchange
Commission, with whom Brian G. Cartwright, General Counsel, Andrew
N. Vollmer, Deputy General Counsel, Jacob H. Stillman, Solicitor,
and Katharine B. Gresham, Assistant General Counsel, were on brief
for appellant.
     Anthony Mirenda, with whom Robert E. Toone, Jennifer A.
Cardello, Jennifer S. Behr and Foley Hoag LLP were on brief, for
appellee Kevin F. Crane.
     Anthony Mirenda for appellees Virginia A. Papa and Sandra G.
Childs.
     Kelley A. Jordan-Price, Michael J. Connolly, Laura B. Angelini
and Hinckley, Allen & Snyder LLP on brief for appellee Virginia A.
Papa.
     John A. Sten, Jason C. Moreau and Greenberg Traurig, LLP on
brief for appellee Sandra G. Childs.


                         February 6, 2009
           BOUDIN,   Circuit   Judge.      This   is   an   appeal   by   the

Securities and Exchange Commission ("SEC") from a judgment of the

district court dismissing with prejudice a civil complaint against

three individuals charging them with violations of the securities

laws.   On the grant of a motion to dismiss, well-pleaded facts in

the complaint are taken as true,        Tellabs, Inc. v. Makor Issues &

Rights, Ltd., 127 S. Ct. 2499, 2509 (2007), so our description of

events is largely drawn from the complaint.

           Putnam is a well-known money management firm. One of its

entities, Putnam Fiduciary Trust Company ("PFTC"), acts as an

administrator of employee-defined contribution plans and Putnam

mutual funds.   Cardinal Health, Inc., a PFTC client who utilized

PFTC to run its employee-defined contribution plans, decided to

merge with Allegiance Health, and in late 2000 the two companies

arranged to combine their defined contribution plans, creating a

trust with PFTC as the trustee and investment manager.

           In this role, PFTC was responsible for investing the

merged plan's assets, making payments on its behalf, and carrying

out investment instructions. On January 2, 2001, the assets of the

Cardinal and Allegiance plans were combined into a single new

combined account; this was done by selling the assets of the old

Cardinal and Allegiance accounts and transferring the proceeds from

those sales to the new combined account.      PFTC had been directed to




                                  -2-
invest the combined assets in several mutual funds as soon as

possible.

            In fact, PFTC did not make the investments until January

3, 2001, causing the combined plan to miss a sharp upswing in the

markets.    Had the same funds been invested on January 2, the value

of the holdings of the combined plan would have been almost $4

million greater.    Told on January 3 that the investments had been

made (but not told of the one-day delay), a Cardinal employee

rejoiced, saying that "[t]he market is up and we look great being

invested on the upswing."

            PFTC officials took a set of steps designed to offset

much of the "loss" to the combined account resulting from the delay

and to conceal the misadventure and its repair.    These activities

gave rise to the present law suit.         According to the SEC's

complaint, at least six employees of PFTC were in some measure

responsible:

            Karnig Durgarian, Jr., the highest ranking
            executive of PFTC and of various Putnam mutual
            funds, in several of which the combined plan
            assets were invested on January 3;

            Virginia A. Papa and Donald McCracken, two
            senior officers of PFTC who reported directly
            to Durgarian;

            Kevin Crain and Sandra Childs, both unit heads
            reporting to Papa; and

            Ronald B. Hogan, an officer in Childs' unit
            who reported to her.



                                 -3-
            According to the SEC, Crain, Childs, Hogan and perhaps

others met on January 3 or 4, 2001, and agreed that the combined

plan should be protected from losses resulting from the one-day

delay.     On January 4 or 5, Hogan began to work out possible

transactions to achieve this end.            On or about January 5, all six

defendants met and Hogan described a plan to cover the loss by

using    "as-of"   transactions--backdated           purchases    or   sales    of

securities that use the price from an earlier day rather than the

price current on the date the transaction occurred.

            Such as-of trades can dilute the value of other shares in

a mutual fund, but (we are told) they are not necessarily illegal

and are used to correct trading errors.              However, to prevent harm

to its mutual fund shareholders from dilution that may be caused by

as-of trades, PFTC had an internal policy, known as the penny-per-

share    policy,   requiring     the   party      responsible    for   the   error

necessitating      the   as-of     trade     to     compensate     mutual      fund

shareholders for any dilution of value beyond a penny per share.

            Each participant in the January 5, 2001, meeting, the SEC

asserts, knew that the transactions would harm the other mutual

fund investors and that the harm would exceed a penny per share.

Nevertheless, says the SEC, "[a]fter discussion, Defendants agreed

to execute Hogan's plan."        Durgarian said that Cardinal should not

be informed about the delay in making the original investments and

that PFTC would not bear the cost of the shortfall.


                                       -4-
             Hogan thereafter executed several transactions involving

Putnam funds.      The first, which serves as an example, involved

reversing on the books some January 2, 2001, sales by Cardinal

(made in liquidating its old account) and restating the sales as

occurring on January 3, crediting the new combined account with the

higher value that those shares had on the later date.                 This

generated $450,000 for the combined plan at the expense of the

Putnam funds' shareholders.

             This first set of transactions were followed by two more

transactions, differently designed but also at the expense of other

Putnam funds' shareholders.        The result was to offset about $3

million of the $4 million loss.         The remaining $1 million in loss,

which was due to delayed investment in the Franklin Small Cap Fund-

-a non-Putnam mutual fund--went uncompensated. Hogan and Durgarian

both contacted Franklin and attempted to persuade it to execute

similar as-of trades, but Franklin refused.

             At a later meeting or meetings attended by all six of the

officials identified above, Durgarian told McCracken to use various

accounting adjustments so as to increase recorded expenses for

certain of the adversely affected Putnam funds. The purpose was to

mask   the    apparent   effect   of    the   as-of   transactions.    The

adjustments were designed to appear on the books at the same time

as the as-of trades themselves.




                                       -5-
             On January 18, 2002, and February 7, 2003, PFTC's outside

auditor conducted audits of PFTC's internal controls in the defined

contribution plan servicing unit for the years 2001 and 2002.      As

part of the audit, certain senior managers were required to sign

statements (the "audit letters") stating that they were "unaware of

any uncorrected errors, frauds or illegal acts attributable to"

PFTC that had affected its clients.       Crain, Childs and Papa all

signed these statements for both audits.

             These events came to light in early 2004 when Crain,

having been fired by PFTC for other reasons, told PFTC's internal

auditor that the January 5, 2001, events had the "fingerprints" of

"financial fraud."    Ultimately PFTC terminated Durgarian, Papa and

Hogan and converted McCracken's 2002 resignation into a termination

for cause.    PFTC made compensatory payments to the affected Putnam

mutual funds and to others who had redeemed shares or withdrawn

from the Putnam funds or combined plan.

             On December 30, 2005, the SEC filed a civil complaint in

the district court alleging that all six of the PFTC officers had

violated section 17(a) of the Securities Act, 15 U.S.C. § 77q(a)

(2006), section 10(b) of the Exchange Act, id. § 78j, and its

implementing regulation, Rule 10b-5, 17 C.F.R. § 240.10b-5 (2008),

and that each had aided and abetted PFTC's uncharged primary

violations of section 10(b) and Rule 10b-5, thus violating section

20(e) of the Exchange Act, 15 U.S.C. § 78t(e).


                                  -6-
            Section 10(b) of the Exchange Act, which is central to

this case, makes it unlawful "[t]o use or employ, in connection

with the purchase or sale of any security . . . any manipulative or

deceptive device or contrivance in contravention of such rules and

regulations    as    the    Commission    may    prescribe    as    necessary      or

appropriate."       Id. § 78j.     Rule 10b-5 identifies false, misleading

or incomplete statements as violations and proscribes the use of

devices, schemes, or artifices to defraud.              17 C.F.R. § 240.10b-5.

            On motions by the defendants to dismiss for failure to

state   a   claim,    the   district     court   denied   the      motions   as    to

Durgarian, McCracken, and Hogan in light of their actions in

ordering or carrying out the pertinent transactions.                         SEC v.

Durgarian, 477 F. Supp. 2d 342, 350, 353-54 (D. Mass. 2007).                       By

contrast, the district court found that none of the counts stated

a claim against Papa, Crain, and Childs, id. at 360, and entered

final judgment in favor of each, Fed. R. Civ. P. 54(b), permitting

an immediate separate appeal by the SEC, Fed. R. App. P. 4(a).

            The district court, in dismissing claims against the

appellees as primary violators, stressed that Papa, Crain, and

Childs were not charged with ordering or executing any of the

wrongful    transactions      in    January     2001;   the   complaint      merely

asserted in general terms that they had "agreed" on January 5,

2001, to the overall plan.            This, the district court said, was

insufficient    to     make    them    "substantial"      participants        in    a


                                       -7-
potentially wrongful scheme directed by Durgarian and carried out

by Hogan and McCracken.

          The appellees' signing of the audit letters over a year

after the transactions (and then again a year after that) were

affirmative acts but, as to them, the district court said:

          [T]he alleged false [audit letters] bearing
          their signatures are too attenuated to link
          them to the fraudulent scheme.        The SEC
          provides no allegation linking the signatures
          to the fraud other than its general assertion
          that the defendants attended the meeting. The
          referenced certification letters are the only
          overt acts alleged in the Complaint against
          these defendants and, therefore, the only
          basis on which their substantial participation
          in the scheme, and thus their liability as
          primary violators, is predicated.

Durgarian, 477 F. Supp. 2d at 355.       For similar reasons, the

district court also found inadequate the aiding and abetting claims

against Papa, Crain and Childs.    Id. at 357.1

          On appeal, the dispute has been narrowed.     The SEC no

longer asserts that Papa, Crain, and Childs are liable as primary

violators under sections 10(b) and 17(a). It claims only that they

aided and abetted PFTC's uncharged primary violations of section

10(b), as implemented by Rule 10b-5, by signing the 2002 and 2003



     1
      In addition, the district court said that the complaint
failed to plead facts sufficient to create a strong inference that
Papa, Crain and Childs acted with scienter in signing the audit
letters. Id. at 355. However, the "strong inference" requirement
relied on by the court has recently been held inapplicable to SEC
actions, SEC v. Tambone, 550 F.3d 106, 119-20 (1st Cir. 2008),
petition for reh'g filed, so we bypass this alternative holding.

                                  -8-
audit letters while knowing that the allegedly wrongful as-of

transactions and accounting adjustments had occurred and not been

disclosed.

           Appellees say that this is a theory that the SEC never

squarely presented to the district court and so cannot be argued on

appeal as a basis for reversal.          The SEC's theory of appellees'

liability in the district court rested on the alleged agreement by

the Papa, Crain and Childs to the overall scheme, and their later

signatures on the audit letters were treated merely as acts in

furtherance of that scheme.        Thus, the SEC's emphasis in the

district court was different than its emphasis on this appeal.

           Still, the SEC's complaint included at the end a general

aiding   and   abetting   count   including    all   defendants   without

specifying conduct, and the SEC's opposition to the motion to

dismiss did refer to the audit letters as furthering the initial

plan. True, the SEC's argument now depends upon treating the audit

letters as the only wrongdoing by appellees.            But, while this

sharpens the focus, it is not an entirely new argument.

           The civil aiding and abetting offense was added to the

Exchange Act as an amendment in 1995, Private Securities Litigation

Reform Act of 1995, Pub. L. 104-67, § 104, 109 Stat. 737, following

Cent. Bank of Denver, N.A. v. First Interstate Bank of Denver,

N.A., 511 U.S. 164 (1994).        In Central Bank, the Supreme Court

rejected aiding and abetting as a basis for liability for section


                                   -9-
10(b) violations; and, in response, Congress added section 20(e),

15 U.S.C. § 78t(e), to the Exchange Act, to provide--for SEC

enforcement but not private actions--that

          any person that knowingly provides substantial
          assistance to another person in violation of a
          provision of this chapter, . . . shall be
          deemed to be in violation of such provision to
          the same extent as the person to whom such
          assistance is provided.

          The question, then, is whether the conduct charged in

this case can comprise substantial assistance, and the first issue

is assistance of what wrong.      The SEC's brief--like its original

complaint--variously   refers     to   two   different   notions   of   the

"wrong": one is of a set of transactions in January 2005 which, to

an outsider, might seem dubious; the other is a notion that the

wrong pertinent to this appeal lay in PFTC's failure as a fiduciary

to disclose the initial loss and the remedial steps that followed.2

          The   initial   delay    and   the   transactions   themselves

(whether or not wrongful) seemingly caused concrete financial loss,

namely, the net loss (after partial compensation) to the combined

Cardinal-Allegiance fund and the reduction in value for other

shareholders.   If this were the focus, the difficulty for the SEC


     2
      Paragraph 1 of the complaint describes the offense as
follows: "[Defendants] engaged in a fraudulent scheme to conceal
and cover up an error that had occurred in a client's account.
Instead of disclosing the error to the client and facing the
consequences, Defendants engaged in a fraudulent course of conduct
to transfer the loss from one client to others and then to conceal
the error and the fraudulent transfer from the affected clients and
from PFTC's auditors."

                                  -10-
would    be    that   the   transactions,   including    the   accounting

adjustments masking them, were completed in or around January 2005,

long before the audit letters by appellees.         One cannot aid and

abet a fraudulent scheme that is already complete,         United States

v. Hamilton, 334 F.3d 170, 180 (2d Cir.), cert. denied, 540 U.S.

985 (2003), so the issue would be one of duration.

              In Krulewitch v. United States, 336 U.S. 440 (1949), and

Grunewald v. United States, 353 U.S. 391 (1957), the Supreme Court

refused to treat conspiracies (a close counterpart to "schemes") as

continuing crimes once the initial wrong is completed, even though

continuing concealment was alleged or implicit.3        Other courts have

extended Grunewald and Krulewitch to civil conspiracies.             See,

e.g., Pyramid Sec. Ltd., 924 F.2d at 1117-18; Hampton v. Hanrahan,

600 F.2d 600, 622 (7th Cir. 1979), rev'd in part on other grounds

by 446 U.S. 754 (1980).

              Of course, an agreement to conceal after the fact could

be viewed as inherent in a conspiracy or any wrongful fraudulent

scheme; but then all covert joint wrongdoing would be a permanently

continuing offense, Krulewitch, 336 U.S. at 456 (Jackson, J.,



     3
      "[T]he Supreme Court held long ago that a conspiracy
generally ends when the design to commit substantive misconduct
ends; it does not continue beyond that point "merely because the
conspirators take steps to bury their traces, in order to avoid
detection and punishment after the central criminal purpose has
been accomplished." Grunewald v. United States . . . ." Pyramid
Sec. Ltd. v. IB Resolution, Inc., 924 F.2d 1114, 1117-18 (D.C.
Cir.), cert. denied, 502 U.S. 822 (1991).

                                   -11-
concurring), an approach that the Supreme Court has rejected.

Similarly, "[t]hough the result of a conspiracy may be continuing,

the conspiracy does not thereby become a continuing one."         Fiswick

v. United States, 329 U.S. 211, 216 (1946).

            Admittedly, a borderland of uncertainty exists as to how

far   the   Grunewald    approach   extends   where,   for   example,   the

statutory offense is inherently a continuing one or an objective to

take continuing action to conceal is part of the central plan.          The

problem is complicated by new case law after Grunewald, especially

in the tax area, e.g., Forman v. United States, 361 U.S. 416, 422-

24 (1960), overruled on other grounds by Burks v. United States,

437 U.S. 1 (1978), and by variations as to the offense, the facts,

and various contexts (e.g., statute of limitations, hearsay) in

which duration questions occur.

            At least on appeal, the SEC sidesteps the problem of

scheme duration.        The ongoing wrong that it says was aided and

abetted by appellees was not the transactions themselves nor the

scheme that embodied them but arose out of an ongoing fiduciary

duty by PFTC to disclose the original loss and the subsequent

partial transfer of loss to the clients adversely affected.             The

SEC argued below that all of the defendants including appellees had

such a fiduciary duty, but it no longer maintains that position on

appeal.




                                    -12-
             Instead, the SEC argues that, given PFTC's continuing

duty as a fiduciary to make this disclosure, which is at least

arguable,    Restatement     (Third)    of   Agency   §   8.11    (2006),     the

appellees' audit letters "assisted" PFTC in continuing to breach

its   duty    because--the     SEC     claims   (appellees       say   this   is

speculative)--accurate answers to the audit letters would have

revealed PFTC's conduct to auditors and eventually to the combined

plan and Putnam funds. An underlying necessary premise is that the

non-disclosure was not only a breach of fiduciary duty but also a

violation of section 10(b), so invoking SEC jurisdiction.

             A breach of fiduciary duty can sometimes be central to a

section 10(b) violation; an example would be a purchase or sale

that is deemed fraudulent or manipulative because it is based on

undisclosed inside information in breach of a fiduciary duty.

E.g., United States v. O'Hagan, 521 U.S. 642 (1997).              Possibly the

securities transactions in this case, if they were violations, are

so partly because of fiduciary duty to manage them in the clients'

interest.

             But, by contrast to the usual bilateral purchase or sale

involving a material misstatement or omission, the non-disclosures

did not cause either the transactions or the concrete losses

resulting from them.       See Loss & Seligman, Securities Regulation

3710-12 (3d rev. ed. 2003).            Even if the non-disclosures were

regarded as a continuing breach of fiduciary duty, it is perhaps


                                     -13-
arguable   but   not   crystal     clear     in   this   case    that   the   non-

disclosures themselves constitute a securities law violation.

           Admittedly, the boundary lines are not sharply etched:

in SEC v. Zandford, 535 U.S. 813 (2002), the Supreme Court mingled

concepts of fiduciary duty and non-disclosure in extending section

10(b) to a broker who embezzled client proceeds derived from the

sale of securities.         Id. at 820-23.    But even there the Court did

not suggest that the wrongdoing could be treated as a continuing

securities violation after the embezzlement and could be used to

make liable for it those who learned of the wrong but did not

disclose it.

           The SEC's attempt to do so here would extend the supposed

wrong indefinitely and until its disclosure--not just as a common

law breach of duty but as a federal securities violation.                     Then,

through the aiding and abetting device, the SEC's approach would

create new liability under section 10(b), long after the original

transactions, for individuals like appellees otherwise assumed to

be not liable for those transactions.              And it would do so based

solely on general denials of knowledge of wrongdoing.

           Whether     or    not   the   January    2001   transactions       were

violations of section 10(b) has not been briefed to us; but they

occurred in the same time frame as the original purchases for

Cardinal and the as-of adjustments and they affected the value of

holdings both of Cardinal-Allegiance and others.                The mere denials


                                     -14-
of knowledge by appellees a year or more later may be wrongful, but

the wrongs were not in our view the aiding and abetting of ongoing

securities fraud merely by dint of some other fiduciary to disclose

its errors or wrongs.

           False statements that impede discovery of a crime or

fraud that has already been completed may well be punished in some

circumstances--for example, as perjury or obstruction of justice.

But those who lied do not thereby become responsible for the crime

or fraud itself unless it is then ongoing and assisted by the lie.

Cf. 18 U.S.C. § 1621 (2006); 2 LaFave, Substantive Criminal Law §

13.6 (2d ed. 2003).      The distinction can greatly affect the

consequences for the offender; obstruction is one thing; liability

for the original wrong, another.

           Ironically, the SEC's complaint might have sustained an

aiding and abetting claim based directly on appellees' alleged

agreement at the January 5, 2001, meeting.     Where a wrongful act is

proposed, there is some precedent for treating as aiding and

abetting   a   bystander's   contemporaneous     assurance   that   no

repercussions will follow, and this might even be inferred from

silence where consciously intended to further a planned or an

ongoing violation.4


     4
      See State v. Conde, 787 A.2d 571, 579-82 (Conn. App. 2001),
cert. denied, 793 A.2d 251 (2002); see also State v. Doody, 434
A.2d 523, 529-30 (Me. 1981); LaFave, supra, § 13.2(a), at 340.
Compare Armstrong v. McAlpin, 699 F.2d 79, 92 (2d Cir. 1983)
(finding that "[a]wareness and approval, standing alone, do not

                                -15-
          But the SEC has not relied upon such a theory in this

court; and the appellees have therefore had no reason to answer it.

And, of course, it depends on viewing the original transactions

themselves as violations of section 10(b) which is the argument

that the SEC seemed to make in its complaint but has not developed

on this appeal.   So we mention this alternative only to make clear,

for future cases, that we have not considered and rejected it.

          Affirmed.




constitute substantial assistance" to securities fraud where the
approval did not cause the underlying conduct).

                                -16-
