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In 1986 and 1988, the Colorado Springs-Stetson Hills Public Building Authority issued a total of $26 million in bonds to finance public improvements at Stetson Hills, a planned residential and commercial development in Colorado Springs. Petitioner Central Bank of Denver served as indenture trustee for the bond issues. The bonds were secured by landowner assessment liens covering about 250 acres for the 1986 issue and 272 acres for the 1988 issue. The bond covenants required that the land subject to the liens be worth at least 160% of the bonds' outstanding principal and interest, and AmWest Development, the developer, was to provide Central Bank with annual reports containing evidence that this test was met. In January 1988, AmWest provided Central Bank with an updated appraisal of the land securing the 1986 bonds and proposed for the 1988 bonds, showing values almost unchanged from 1986. A senior underwriter for the 1986 bonds soon expressed concern that declining property values in Colorado Springs meant the 160% test might not be met, given the appraisal was over 16 months old. Central Bank asked its in-house appraiser to review the 1988 appraisal, who found the values optimistic and suggested retaining an outside appraiser for an independent review. After an exchange of letters with AmWest in early 1988, Central Bank agreed to delay the independent review until the end of the year, six months after the June 1988 closing on the bond issue. Before the review was complete, the Authority defaulted on the 1988 bonds. Respondents First Interstate Bank of Denver and Jack K. Naber, who had purchased $2.1 million of the 1988 bonds, sued the Authority, underwriters, an AmWest director, and Central Bank for violations of § 10(b) of the Securities Exchange Act of 1934, alleging Central Bank was secondarily liable for aiding and abetting the fraud. The United States District Court for the District of Colorado granted summary judgment to Central Bank. The United States Court of Appeals for the Tenth Circuit reversed, finding genuine issues of material fact on recklessness and substantial assistance. The Supreme Court granted certiorari to resolve the question of aiding and abetting liability under § 10(b).

In 1975 and 1976 Vincent Chiarella worked as a markup man in the New York composing room of Pandick Press, a financial printer. Among the documents he handled were five announcements of corporate takeover bids. The identities of the acquiring and target corporations were concealed by blank spaces or false names. The true names were sent to the printer on the night of the final printing. Chiarella deduced the names of the target companies from other information contained in the documents. Without disclosing his knowledge, Chiarella purchased stock in the target companies. He sold the shares immediately after the takeover attempts were made public. By this method he realized a gain of slightly more than $30,000 in the course of fourteen months. The Securities and Exchange Commission subsequently began an investigation of his trading activities. In May 1977 Chiarella entered into a consent decree with the Commission in which he agreed to return his profits to the sellers of the shares. On the same day he was discharged by Pandick Press. In January 1978 he was indicted on seventeen counts of violating § 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. After he unsuccessfully moved to dismiss the indictment, he was tried and convicted on all counts in the District Court. The Court of Appeals for the Second Circuit affirmed the conviction. The Supreme Court granted certiorari.