PACIFIC FIRST FEDERAL SAVINGS BANK, ET AL., V. WAYNE C. REMBOLD, ET
AL.

   No. 86-940

   In the Supreme Court of the United States

   October Term, 1986

   On Petition for A Writ of Certiorari to the United States Court of
Appeals for the Ninth Circuit

   Brief for the United States as Amicus Curiae

            TABLE OF CONTENTS
   Question presented
   Statement
   Discussion
   Conclusion

                          QUESTION PRESENTED

   Whether the Federal Home Loan Bank Board's approval of a saving
institution's application to convert from a mutual to a stock form of
ownership divested the district court of jurisdiction under the
federal securities laws to consider fraud claims asserted by
purchasers of stock offered pursuant to the conversion.

   This brief is filed in response to the Court's invitation to the
Solicitor General to express the views of the United States.

                               STATEMENT

   This case arises out of the sale of stock in petitioner Pacific
First Federal Savings Bank pursuant to Pacific First's conversion from
a mutual to a stock form of ownership.  Under the provisions of the
National Housing Act and the Home Owners' Loan Act and regulations
promulgated thereunder (12 U.S.C. 1725(j);  12 U.S.C. 1464(i);  12
C.F.R. Pt. 563b), Pacific First was required to obtain approval of its
conversion plan by the Federal Home Loan Bank Board (FHLBB).  The
approval was obtained in June, 1983, and shortly thereafter Pacific
First offered its depositors preferential rights to purchase stock
pursuant to a subscription offering circular (Pet. App. 2a).

   Respondents, who allege that they purchased 328,726 shares of stock
in reliance on the circular, filed suit in February, 1985, in the
United States District Court for the District of Oregon, charging
violations of the antifraud provisions of the federal securities laws
(Pet. App. 2a).  /1/ The complaint alleged that the offering circular
contained numerous material misrepresentations, including
misrepresentations concerning the value of Pacific First's loan and
real estate portfolios, the adequacy of its reserves against future
losses and its anticipated future earnings (Br. in Opp. App. 4a-6a).

   The district court dismissed the suit for lack of subject matter
jurisdiction.  The court held that it had no jurisdiction to hear
respondents' securities law claims because, under 12 U.S.C. 1725(j)(2)
and 1730a(k), judicial review of an FHLBB order approving a conversion
plan may be obtained only in a United States court of appeals (Pet.
App. 22a).  /2/

   The Ninth Circuit reversed.  The court of appeals first noted that
the antifraud provisions of the federal securities laws apply
generally to sales of savings institution securities.  Pet. App. 5a
(citing Tcherepnin v. Knight, 389 U.S. 332, 340-342 (1967)).  It then
concluded that nothing in the legislation granting authority to the
FHLBB to approve conversions either expressly or impliedly exempts
from the federal securities laws a sale of securities pursuant to a
conversion.  In this connection, the court observed that the exclusive
review provision applies only "to the right to review by a party
aggrieved by an 'order' of the FHLBB approving or disapproving a
conversion plan" (Pet. App. 7a).  "The (FHLBB review) statute makes no
reference to the right to maintain a private cause of action against
the savings institution by a person who has suffered damages as the
result of misrepresentations in a stock offering circular" (ibid.
(emphasis added)).  Indeed, the court noted (id. at 7a-8a), the FHLBB
specifically requires that conversion stock offering materials contain
a legend stating that the FHLBB has not passed on the accuracy or
adequacy of the offering circular.  12 C.F.R. 563b.7(d), 563b.102.

                              DISCUSSION

   The decision below is correct.  It does not conflict with any
decision of this Court or of any other court of appeals.  In
particular, it does not conflict with the decisions of two other
courts of appeals that have considered the relationship between the
conversion process and enforcement of the securities laws.
Accordingly, review by this Court is not warranted.

   1. The antifraud provisions of the federal securities laws clearly
apply to the offer and sale of securities issued by savings
institutions.  See Tcherepnin v. Knight, supra (withdrawable capital
shares of savings institution are securities for purposes of the
securities laws).  Although Congress exempted securities issued by
savings institutions from certain registration requirements of the
securities laws, 15 U.S.C. 77c(a)(5)(A), it did not exempt such
securities from the antifraud provisions of those laws.

   Common stock issued pursuant to a conversion from a mutual to a
stock form of ownership is no exception to this general rule.  In
granting authority to the FHLBB to approve conversions, Congress did
not in any way suggest that investors in converted thrift companies
should be deprived of the protections against securities fraud
available to investors in other companies.  The exclusive jurisdiction
provision applicable to conversions is limited to final orders of the
FHLBB that approve or disapprove a conversion plan.  It does not
purport to extinguish federal securities fraud claims that may arise
as a result of materially false or misleading statements in offering
documents distributed by converting savings institutions.

   This Court has repeatedly held that "repeals by implication are not
favored." TVA v. Hill, 437 U.S. 153, 189 (1978) (quoting Morton v.
Mancari, 417 U.S. 535, 549 (1974)).  Repeal may be implied only where
there is a "plain repugnancy" between statutory schemes.  Gordon v.
New York Stock Exchange, 422 U.S. 659, 682-683 (1975).  Petitioners in
this case can demonstrate no such repugnancy.  FHLBB regulation of
conversions is fully compatible with the antifraud provisions of the
securities laws.  Indeed, the FHLBB has itself concluded that "the
antifraud provision(s) of the federal securities laws are applicable
to all offers for sale of securities, assuming the use of
jurisdictional means * * *." 48 Fed. Reg. 31614-31615 (1983) (comment
accompanying amendments to FHLBB disclosure regulations, 12 C.F.R.
Pts. 563b, 563c, 563d).

   In SEC v. National Securities, Inc., 393 U.S. 453 (1969), this
Court found no conflict between state regulation of insurance
companies and the normal operation of the securities laws.  The SEC in
that case alleged misrepresentations and omissions in communications
to shareholders concerning a merger of two insurance companies.  The
defendants argued that the action was barred by Section 2(b) of the
McCarran-Ferguson Act, which provides that no federal law "shall be
construed to invalidate, impair, or supersede any law enacted by any
State for the purpose of regulating the business or insurance." 15
U.S.C. 1012(b).  They contended that, because the state director of
insurance had approved the merger and found it not to be inequitable
or contrary to law, the merger was immune from challenge by the SEC.
This Court disagreed, concluding that approval of the merger by the
state did not conflict with the requirement of the securities laws
"that insurance companies speak the truth when talking to their
shareholders" (ibid.).

   Similarly, there is no reason why FHLBB approval of a plan of
conversion should preclude application of the securities laws to
misstatements and omissions in the offering circular of a converting
institution.  FHLBB regulations prohibit representations in the
offering circular that the FHLBB has passed on the circular's accuracy
or adequacy (12 C.F.R. 563b.7(d)) and require that a notice to that
effect appear in the circular itself.  12 C.F.R. 563b.102.  Such a
notice appeared in the circular that respondents challenge in this
case.

   Adoption of petitioners' position could virtually immunize
converting institutions from liability for misstatements and omissions
in their offering materials.  Judicial review of an FHLBB order
approving or disapproving a conversion must be sought within 30 days
of the order.  12 U.S.C. 1730a(k).  Investors will often not be able
to discover a misstatement within that time, particularly since they
may not even have purchased their stock by then.  Indeed, the
conversion stock offering itself may not be made within that 30-day
period.  See 12 C.F.R. 563b.3(c)(11).  As the court of appeals noted,
one should not assume that Congress intended such an untoward result
without an "unmistakable expression" to that effect (Pet. App. 8a).

   2. The decisions of the two other courts of appeals that have
indirectly addressed this issue do not conflict with the decision of
the court below.  In each case the court found that, on the facts
presented, the asserted securities law claims were in reality a
challenge to the FHLBB order approving the particular conversion.
Harr v. Prudential Fed. Sav. & Loan Ass'n, 557 F.2d 751 (10th Cir.
1977), cert. denied, 434 U.S. 1033 (1978);  Craft v. Florida Fed. Sav.
& Loan Ass'n 786 F.2d 1546 (11th Cir. 1986).  In light of the
exclusive jurisdiction vested in courts of appeals to hear such
challenges, the courts of appeals therefore concluded in each case
that the district court lacked jurisdiction to hear the disguised
attack on the FHLBB'S order.  But the decisions do not purport to
divest the district courts of jurisdiction to hear legitimate federal
securities law claims that do not challenge an FHLBB conversion order.

   The Harr plaintiffs alleged that the date of record selected by the
savings and loan, and approved by the FHLBB, for determining ownership
in the mutual association (to qualify for free stock) was part of a
conspiracy to benefit the association's directors and officers, and
that the conversion plan itself was somehow a fraudulent and deceptive
device in violation of Section 10(b) and Rule 10b-5.  They also
alleged that the proxy materials were misleading, but the complaint
failed to identify any false or misleading statements.  Under these
circumstances, the Tenth Circuit correctly concluded that "the sole
thrust of plaintiff's argument" was that the Board should not have
approved the plan and that the allegations of securities fraud were at
bottom "nothing more than an assertion that the plan is wrong and
should not have gone into effect." 557 F.2d at 754.  See also Harr v.
FHLBB, 557 F.2d 747 (10th Cir. 1977), cert. denied, 434 U.S. 1033
(1978) (in which the Harr plaintiffs directly challenged the FHLBB'S
approval of the conversion).

   Similarly, the plaintiffs in Craft challenged a decision, approved
by the FHLBB after the plaintiffs had subscribed to a conversion plan,
to increase the number of shares in the public offering.  They argued
that the savings and loan was obligated to recirculate the offering
materials and permit rescission by the original subscribers.  The
court held that the suit was a challenge to the plan itself and that
the district court lacked jurisdiction to hear plaintiffs' claim under
12 U.S.C. 1725(j)(2) and 1730a(k).  The court stressed that
plaintiffs' fraud claims were merely "bare bones allegations made to
escape (these) exclusive review provisions" and that plaintiffs had
not in fact "allege(d) any false or misleading statements" (786 F.2d
at 1554).  The court specifically noted that it was not saying that
the district court would not have jurisdiction over a claim of
securities fraud (ibid.):

      We are not called upon here to decide, nor do we express any
      views concerning the jurisdiction vel non of the district court
      under the federal securities laws when securities fraud is
      properly alleged and there has been Bank Board approval of a
      savings and loan conversion.

   Respondents here allege garden variety securities fraud -- that
they purchased securities based on misrepresentations concerning the
financial condition of Pacific First.  As the court below concluded
(Pet. App. 11a), these claims state an antifraud cause of action under
the securities laws, which the district court properly should consider
on the merits.  /3/ In contrast, Harr and Craft essentially attacked
the decision of the FHLBB in approving the conversion plan and were
correctly dismissed on jurisdictional grounds.  All of these decisions
stand for a single proposition:  that the district courts have
jurisdiction to hear valid claims of securities fraud in connection
with an approved conversion, but lack jurisdiction to hear a challenge
to an FHLBB approval in the guise of a securities law claim.  /4/ No
court has reached a contrary conclusion.

   3. Petitioners also contend (Pet. 11-12) that applying the
antifraud provisions of the federal securities laws to offers and
sales of stock issued by converting thrift institutions will
destabilize the conversion process and threaten the viability of the
thrift industry.  That contention is baseless.  As far as we are
aware, only one of the several hundred institutions that have
converted under the FHLBB regulations to date has faced properly
alleged claims for securities fraud.  Moreover, the FHLBB has
expressly endorsed the value of full and fair disclosure by savings
institutions as fostering the ability of insured institutions to raise
capital and improving institutional safety and soundness.  See 50 Fed.
Reg. 53284, 53285 (1985).  /5/

                              CONCLUSION

   The petition for a writ of certiorari should be denied.

   Respectfully submitted.

   DANIEL L. FOELZER

      General Counsel

   PAUL GONSON

      Solicitor

   JACOB H. STILLMAN

      Associate General Counsel

   ROSALIND C. COHEN

      Assistant General Counsel

   DANIEL F. WAKE

      Attorney Securities and Exchange Commission

   HARRY W. QUILLIAN

      General Counsel

   JULIE L. WILLIAMS

      Deputy General Counsel Federal Home Loan Bank Board

   CHARLES FRIED

      Solicitor General

   MAY 1987

   /1/ Respondents alleged that petitioners violated Sections 12(2)
and 17(a) of the Securities Act of 1933, 15 U.S.C. 77l(2) and 77q(a),
and Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C.
78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. 240.10b-5.
The complaint also alleged violations of Oregon and Washington
securities laws and several common law torts.  In addition to Pacific
First, the complaint names as defendants petitioners Kaplan, Smith &
Associates, Inc., a financial consulting firm that appraised the
stock, and Price Waterhouse, an independent accounting firm that
rendered an opinion on the financial statements in the circular.

   /2/ 12 U.S.C. 1725(j)(2) provides in pertinent part:

      Any aggrieved person may obtain review of a final action of the
      Federal Home Loan Bank Board * * * which approves, with or
      without conditions, or disapproves a plan of conversion pursuant
      to this subsection only by complying with the provisions of (12
      U.S.C. 1730a(k)) * * *.

See also 12 U.S.C. 1464(i)(4).  12 U.S.C. 1730a(k) in turn vests
exclusive jurisdiction to review orders of the FHLBB in the United
States courts of appeals and provides that review must be sought
within 30 days of the final action at issue.

   /3/ Petitioners contend (Pet. 13-14) that, because one of the
numerous allegations of misstatements in the offering circular is
comparable to the allegation in Craft (i.e., the sale of additional
stock to the public), this case is indistinguishable from Craft.  That
argument ignores the additional detailed claims of fraud alleged by
respondents here, including false statements concerning the value of
Pacific First's loan and real estate portfolios, the adequacy of its
reserves and its reasonably anticipated future earnings.

   /4/ The FHLBB filed amicus briefs in the court of appeals in Harr
and in the district court in Craft.  The SEC filed amicus briefs in
the court of appeals in both Craft and the present case.  The
positions urged by the agencies were consistent with each other,
consistent with the decisions reached by the courts of appeals in the
two earlier cases, and consistent with the decision by the court below
in this case.

   /5/ Petitioners further argue that, to the extent an adverse
judgment would require Pacific First to rescind its sales contracts,
such a remedy would violate FHLBB regulations restricting repurchases.
 See 12 C.F.R. 563b.3g).  The argument is ill-founded for two reasons.
 First, respondents here do not seek rescission, only damages.
Second, it is premature to consider the possible effects of particular
remedies, since this case in its present posture "involves only the
threshold question of whether a federal court has jurisdiction over
the complaint filed by the (respondents) * * *." Tcherepnin v. Knight,
389 U.S. at 346.