1 (Slip Opinion) OCTOBER TERM, 2013

Syllabus

NOTE: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued. The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.


## SUPREME COURT OF THE UNITED STATES

Syllabus

CHADBOURNE & PARKE LLP v . TROICE ET AL

.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE FIFTH CIRCUIT

No. 12–79. Argued October 7, 2013—Decided February 26, 2014*

The Securities Litigation Uniform Standards Act of 1998 (Litigation

Act or Act) forbids the bringing of large securities cl ass actions “based upon the statutory or common law of any State” in which the plain

tiffs allege “a misrepresentation or omission of a material fact in con

nection with the purchase or sale of a covered security,” 15 U. S. C. §78bb(f)(1). The Act defines “covered security” to include, as relevant here, only securities traded on a national exchange. §§78bb(f)(5)(E), 77r(b)(1).

Four sets of plaintiffs, respondents here, filed civil class actions under state law, contending that the defendants, petitioners here, helped Allen Stanford and his companies perpetrate a Ponzi scheme by falsely representing that uncover ed securities (certificates of de

posit in Stanford International Bank) that plaintiffs were purchasing were backed by covered securities. The District Court dismissed each case under the Litigation Act. Al though the certificates of deposit were not covered securities, the court concluded, the Bank’s misrep

resentation that its holdings in co vered securities made investments
in its uncovered securities more se cure provided the requisite “con

nection” (under the Litigation Act) between the plaintiffs’ state-law
actions and transactions in covered securities. The Fifth Circuit re

versed, concluding that the falseh oods about the Bank’s holdings in covered securities were too tangentially related to the fraud to trigger the Litigation Act.

Held : The Litigation Act does not preclude the plaintiffs’ state-law class

——————

* Together with No. 12–86, Willis of Colorado Inc. et al. v. Troice et al., and No. 12–88, Proskauer Rose LLP v. Troice et al., also on certio

rari to the same court.2 CHADBOURNE & PARKE LLP v. TROICE

Syllabus

actions. Pp. 8–19.

(a) Several factors support the conclusion that the scope of §78bb(f)(1)(A)’s phrase “misrepresentat ion or omission of a material fact in connection with the purchase or sale of a covered security” does not extend further than misrepresentations that are material to the decision by one or more individu als (other than the fraudster) to purchase or sell a covered security. First, this interpretation is con

sistent with the Act’s basic focus on transactions in covered, not un

covered, securities. Second, the interpretation is supported by the Act’s language. The phrase “material fact in connection with the purchase or sale” suggests a connection that matters. And a connec

tion matters where the misreprese ntation makes a significant differ

ence to someone’s decision to purchase or to sell a covered security, not an uncovered one, something about which the Act expresses no
concern. See Matrixx Initiatives, Inc. v. Siracusano , 563 U. S. ___, ___. Further, for the connection to matter, the “someone” making the decision to purchase or sell a covered security must be a party other
than the fraudster. Th ird, the securities case s in which this Court has found a fraud to be “in connection with” a purchase or sale of a security, under both the Litigation Act and Section 10(b) of the Secu

rities Exchange Act of 1934 (which also uses the “in connection with” phrase), have involved victims wh o took, who tried to take, who di

vested themselves of, who tried to divest themselves of, or who main

tained an ownership interest in fi nancial instruments that fall within

the relevant statutor y definition. See, e.g. , Merrill Lynch, Pierce,
Fenner & Smith Inc. v. Dabit , 547 U. S. 71, 77. Fourth, this Court reads the Litigation Act in light of and consistent with the language and purpose of the underlying regula tory statutes, the Securities Ex

change Act of 1934 and the Securities Act of 1933, which refer to per

sons engaged in securities transactions that lead to the taking or dis

solving of ownership positions, and which make it illegal to deceive a person when he or she is doing so. The basic purpose of the 1934 and 1933 regulatory statutes is to protec t investor confidence in the secu

rities markets. Nothing in those st atutes, or in the Litigation Act, suggests their object is to protec t persons whose connection with the statutorily defined securities is more remote than buying or selling. Fifth, a broader interpretation of the necessary statutory “connec

tion” would interfere with state efforts to provide remedies for vic

tims of ordinary state-law frauds, de spite the fact that the Litigation Act purposefully seeks to avoid su ch results by maintaining States ’ legal authority over matters that ar e primarily of state concern, see,

e.g., §§78bb(f)(4). Pp. 9–14.

(b) Respondents and the Government make two important, but un

availing, counterarguments . First, they point to this Court’s sugges

-3 Cite as: 571 U. S. ____ (2014)

Syllabus

tions that the phrase “in connection with” should be given a broad in

terpretation. But every case in which this Court interpreted the phrase to cover a fraud involved a false statement (or the like) that
was “material” to another individual’s decision to “purchase or s[ell]” a statutorily defined “securit y” or “covered security,” e.g., Dabit

, su

pra , at 75–77, and where the transaction was by or on behalf of
someone other than the fraudster. Second, the Government warns that a narrow interpretation would curtail the Securities and Ex

change Commission’s enforcement powers under §10(b) of the Securi

ties Exchange Act, which uses the same “in connection with the pur

chase or sale” phrase. To the contrary, this Court’s interpretation is perfectly consistent with past SEC practice. The authority of the SEC and the Department of Justice extends to all “securities” under §10(b), not just to those traded on national exchanges. 15 U. S. C. §78c(a)(10). The SEC has accordingly brought successful enforce

ment actions against Stanford and his associates, based on the
Bank’s fraudulent sales of certific ates of deposit—products that are
“securities” even if not “covered se curities.” Neither the Government nor the dissent has pointed to an example of any prior SEC enforce

ment action that the instant hold ing would have prevented the SEC from bringing. Pp. 14–17.

(c) Respondents’ complaints do not allege, for Litigation Act pur

poses, misrepresentations or omissions of material fact “in connection with” the “purchase or sale of a covered security.” At most, they al

lege misrepresentations about the Bank’s ownership of covered secu

rities. But the Bank is the fraudster, not the fraudster’s victim; nor is it some other person transacting in covered securities. Thus, there is not the necessary “connection” between the materiality of the mis

statements and the statutorily requ ired “purchase or sale of a cov

ered security.” In addition, while the District Court found that one plaintiff acquired Bank certificates with proceeds from the sale of covered securities, the plaintiffs did not allege that the sale of these covered securities constituted any part of the fraudulent scheme or that Stanford or his associates were interested in how the plaintiffs obtained the funds to purchase th e certificates. Thus, those sales were only incidental to the fraud. Pp. 17–19.

675 F. 3d 503, affirmed.

B REYER

, J., delivered the opinion of the Court, in which R OBERTS

, C. J., and S CALIA , T HOMAS , G INSBURG , S OTOMAYOR , and K AGAN

, JJ., joined. T HOMAS

, J., filed a concurring opinion. K ENNEDY

, J., filed a dis

senting opinion, in which A LITO

, J., joined._________________

_________________ Cite as: 571 U. S. ____ (2014) 1

Opinion of the Court

NOTICE: This opinion is subject to formal revision before publication in the preliminary print of the United States Reports. Readers are requested tonotify the Reporter of Decisions, Supreme Court of the United States, Washington, D. C. 20543, of any typographical or other formal errors, in order that corrections may be made before the preliminary print goes to press.


## SUPREME COURT OF THE UNITED STATES

Nos. 12–79, 12–86, and 12–88

CHADBOURNE & PARKE LLP, PETITIONER

12–79 v. SAMUEL TROICE ET AL

.

WILLIS OF COLORADO INCORPORATED, ET AL

., PETITIONERS

12–86 v. SAMUEL TROICE ET AL

.

PROSKAUER ROSE LLP, PETITIONER

12–88 v. SAMUEL TROICE ET AL

.

ON WRITS OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE FIFTH CIRCUIT

[February 26, 2014]

J USTICE B REYER delivered the opinion of the Court.
The Securities Litigation Uniform Standards Act of1998 (which we shall refer to as the “Litigation Act”) forbids the bringing of large securities class actions based upon violations of state law. It says that plaintiffs may not maintain a class action “based upon the statutory or common law of any State” in wh ich the plaintiffs allege “a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security. ” 15

U. S. C. §78bb(f)(1) (emphasis added). The Act defines2 CHADBOURNE & PARKE LLP v. TROICE

Opinion of the Court

“class actions” as those involving more than 50 members. See §78bb(f )(5). It defines “covere d security” narrowly to include only securities traded on a national exchange (or, here irrelevant, those issued by investment companies). §§78bb(f )(5)(E), 77r(b)(1)–(2). The question before us is whether the Litigation Act encompasses a class action in which the plaintiffs allege (1) that they “purchase[d]” uncovered securities (certificates of deposit that are not traded on any national exchange), but (2) that the defendants falsely told the victims
that the uncovered securities were backed by covered
securities. We note that the plaintiffs do not allege that the defendants’ misrepresentatio ns led anyone to buy or to sell (or to maintain positions in) covered securities. Under these circumstances, we conclude the Act does not apply. In light of the dissent’s characterization of our holding,

post

, at 11–12 (opinion of K ENNEDY

, J .)—which we believe is incorrect—we specify at the outset that this holding

does not limit the Federal Government’s authority to prosecute “frauds like the one here.” Post , at 11

. The
Federal Government has in fact brought successful prosecutions against the fraudsters at the heart of this litigation, see infra , at 5–6, and we fail to understand the dissent’s repeated suggestions to the contrary, post

, at 3, 4, 11, 12, 17. Rather, as we shall explain, we believe the basic consequence of our holding is that, without limiting the Federal Government’s pros ecution power in any significant way, it will permit victims of this (and similar) frauds to recover damages under state law. See infra

, at 15–17. Under the dissent’s approach, they would have no such ability.

I
A
The relevant statutory framework has four parts: (1) Section 10(b) of the underlying regulatory3 Cite as: 571 U. S. ____ (2014)

Opinion of the Court

statute, the Securities Exchange Act of 1934. 48 Stat. 891, as amended, 15 U. S. C. §78j (2012 ed.). This wellknown statutory provision forbids the “use” or “employ[ment]” of “any manipulative or deceptive device or contrivance” “in connection with the purchase or sale of any security.” §78j(b).Securities and Exchange Commission Rule 10b–5 similarly forbids the use of any “device, scheme, or artifice to defraud” (including the making of “any untrue statement of a material fact” or any si milar “omi[ssion]”) “in connection with the purchase or sale of any security.” 17 CFR §240.10b–5 (2013).For purposes of these provisions, the Securities Exchange Act defines “security” broadly to include not just things traded on national exchanges, but also “any note, stock, treasury stock, security future, security-based swap, bond, debenture . . . [or] certificate of deposit for a security.” 15 U. S. C. §78c(a)(10). See also §§77b(a)(1), 80a–2(a)(36), 80b–2(a)(18) (providing virtually identical definitions of “security” for the Securities Act of 1933, the Investment Company Act of 1940, and the Investment Advisers Act of 1940). (2) A statute-based private right of action. The Court has read §10(b) and Rule 10b–5 as providing injured persons with a private right of action to sue for damages suffered through those provisions’ violation. See, e.g. , Blue Chip Stamps v. Manor Drug Stores , 421 U. S. 723, 730 (1975). The scope of the private right of action is more limited than the scope of the statutes upon which it is based. See Stoneridge Investment Partners, LLC v. Scientific-Atlanta,

Inc. , 552 U. S. 148, 153, 155, 166 (2008) (private right does not cover suits against “secondary actors” who had no “role in preparing or disseminating” a stock issuer’s fraudulent “financial statements”); Central Bank of Denver, N. A. v. First Interstate Bank of Denver, N. A. , 511 U. S. 164, 1794 CHADBOURNE & PARKE LLP v. TROICE

Opinion of the Court

(1994) (private right does not extend to actions against “aiders and abettors” of securities fraud); Blue Chip Stamps

, supra , at 737 (private right extends only to purchasers and sellers, not to holders, of securities). (3) The Private Securities Litigation Reform Act of 1995 (PSLRA). 109 Stat. 737, 15 U. S. C. §§77z–1, 78u–4. This law imposes procedural and substantive limitations upon the scope of the private right of actionavailable under §10(b) and Rule 10b–5. It requires plaintiffs to meet heightened pleading standards. It permits
defendants to obtain automatic stays of discovery. It limits recoverable damages and attorney’s fees. And itcreates a new “safe harbor” for forward-looking statements. See §§78u–4, 78u–5. (4) The Securities Litigation Uniform Standards
Act. 112 Stat. 3227, 15 U. S. C. §78bb(f )(1)(A). As we said at the outset, this 1998 law forbids any

“covered class action based upon the statutory or common law of any State . . . by any private party alleging— “(A) a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security; or“(B) that the defendant used or employed any manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security.” §§78bb(f )(1)(A)–(B).

The law defines “covered security” narrowly. It is a security that “satisfies the stand ards for a covered security specified in paragraph (1) or (2) of section 18(b) of the Securities Act of 1933.” §78bb(f )(5)(E). And the relevant paragraphs of §18(b) of the 1933 Act define a “covered security” as “[a security] liste d, or authorized for listing, on a national securities exchange,” §77r(b)(1) (or, though not relevant here, as a security issued by an “investment5 Cite as: 571 U. S. ____ (2014)

Opinion of the Court

company,” §77r(b)(2)). The Litigation Act also specifies that a “covered security” must be listed or authorized for listing on a national exchange “at the time during which itis alleged that the misrepresentation, omission, or manipulative or deceptive conduct occurred.” §78bb(f )(5)(E). The Litigation Act sets forth exceptions. It does not apply to class actions with fewer than 51 “persons or prospective class members.” §78bb(f )(5)(B). It does not apply to actions brought on behalf of a State itself. §78bb(f )(3)(B)(i). It does not apply to class actions basedon the law “of the State in which the issuer is incorporated.” §78bb(f )(3)(A)(i). And it reserves the authority of state securities commissions “to investigate and bring enforcement actions.” §78bb(f )(4). We are here primarily interested in the Litigation Act’s phrase “misrepresentation or omission of a material factin connection with the purchase or sale of a covered security.” §78bb(f )(1)(A). Unless this ph rase applies to the classactions before us, the plaintiffs may maintain their statelaw-based class actions, and they may do so either in federal or state court. Otherwise, their class actions are precluded altogether. See §78bb(f )(2) (providing for the
removal from state to federal court of class actions thatmeet the specifications of paragraph 1, and for the dismissal of such suits by the district court).

B

1
The plaintiffs in these actions (respondents here) say that Allen Stanford and several of his companies ran a multibillion dollar Ponzi scheme. Essentially, Stanford and his companies sold the plaintiffs certificates of deposit
in Stanford International Bank. Those certificates “were debt assets that promised a fixed rate of return.” Roland

v. Green , 675 F. 3d 503, 522 (CA5 2012). The plaintiffs expected that Stanford International Bank would use the6 CHADBOURNE & PARKE LLP v. TROICE

Opinion of the Court

money it received to buy highly lucrative assets. Butinstead, Stanford and his associates used the money provided by new investors to re pay old investors, to finance an elaborate lifestyle, and to finance speculative real

estate ventures. The Department of Justice brought related criminal charges against Allen Stanford. A jury convicted Stanford of mail fraud, wire fraud, conspiracy to commit money laundering, and obstruction of a Securities and Exchange Commission investigation. Stanford was sentenced to prison and required to forfeit $6 billion. The SEC, noting that the Bank certificates of deposit fell within the 1934 Securities Exchange Act’s broad definition of “security,”filed a §10(b) civil case against Allen Stanford, the Stanford International Bank, and related Stanford companies and associates. The SEC won the civil action, and the court imposed a civil penalty of $6 billion.

2
The plaintiffs in each of the four civil class actions are private investors who bought the Bank’s certificates of deposit. Two groups of plaintiffs filed their actions in Louisiana state court against firms and individuals who helped sell the Bank’s certifi cates by working as “investment advisers” affiliated with Stanford, or who providedStanford-related companies with trust, insurance, accounting, or reporting services. (The defendants included a respondent here, SEI Investments Company.) The plaintiffs claimed that the defendants helped the Bank perpetrate the fraud, thereby violating Louisiana state

law. Two other groups of plaintiffs filed their actions in
federal court for the Northern District of Texas. Onegroup sued Willis of Colorado (and related Willis companies) and Bowen, Miclette & Britt, two insurance brokers; the other group sued Proskauer Rose and Chadbourne &7 Cite as: 571 U. S. ____ (2014)

Opinion of the Court

Parke, two law firms. Both groups claimed that the defendants helped the Bank (and Allen Stanford) perpetrate the fraud or conceal it from regulators, thereby violating
Texas securities law.
The Louisiana state-court defendants removed theircases to federal court, and the Judicial Panel on MultiDistrict Litigation moved the Louisiana cases to the Northern District of Texas. A single federal judge heard
all four class actions.
The defendants in each of the cases moved to dismiss the complaints. The District Court concluded that the Litigation Act required dismissa l. The court recognized that the certificates of depo sit themselves were not “covered securities” under the Litigation Act, for they were not

“ ‘traded nationally [or] lis ted on a regulated national exchange.’ ” App. to Pet. for Cert. in No. 12–86, p. 62. But each complaint in one way or another alleged that the fraud included misrepresentations that the Bank maintained significant holdings in “ ‘highly marketable securities issued by stable governments [and] strong multinational companies,’ ” and that the Bank’s ownership of
these “covered” securities made investments in the uncovered
certificates more secure. Id. , at 66. The court concluded that this circumstance provided the requisite statutory “connection” between (1) the plaintiffs’ state-law fraud claims, and (2) “transactions in covered securities.” Id. , at 64, 66–67. Hence, the court dismissed the class actions under the Litigation Act. Id. , at 75. See also 675 F. 3d,

at 511. All four sets of plaintiffs appealed. The Fifth Circuitreversed. It agreed with the District Court that the complaints described misrepresentations about the Bank’s investments in nationally traded securities. Still, the “heart, crux, and gravamen of ” the “allegedly fraudulent scheme was representing . . . that the [uncovered] CDs were a ‘safe and secure’ investment that was preferable to8 CHADBOURNE & PARKE LLP v. TROICE

Opinion of the Court

other investments for many reasons.” Id ., at 522. The court held that the falsehoods about the Bank’s holdings
in covered securities were too “ ‘tangentially related’ ” to the “crux” of the fraud to trigger the Litigation Act. Id ., at 520, 522 (quoting Madden v. Cowen & Co. , 576 F. 3d 957, 965–966 (CA9 2009)). “That the CDs were marketed with some vague references to [the Bank’s] portfolio containing instruments that might be [covered by the Litigation Act] seems tangential to the schemes,” to the point where the complaints fall outside the scope of that Act. 675 F. 3d,

at 522. Defendants in the four class actions sought certiorari. We granted their petitions.

II
The question before us concerns the scope of the Litigation Act’s phrase “misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security.” §78bb(f )(1)(A). How broad is that scope? Does it extend further than misrepresentations that are material to the purchase or sale of a covered security? In our view, the scope of this language does not extend further. To put the matter more specifically: A fraudulent misrepresentation or omission is not made “in connectionwith” such a “purchase or sale of a covered security” unless it is material to a decision by one or more individuals (other than the fraudster) to buy or to sell a “covered security.” We add that in Merrill Lynch, Pierce, Fenner &
Smith Inc. v. Dabit , 547 U. S. 71 (2006), we held that the Litigation Act precluded a suit where the plaintiffs allegeda “fraudulent manipulation of stock prices” that was material to and “ ‘concide[d]’ with” third-party securities transactions, while also inducing the plaintiffs to “hold their stocks long beyond the point when, had the truth been known, they would have sold.” Id. , at 75, 85, 89 (citing9 Cite as: 571 U. S. ____ (2014)

Opinion of the Court

United States v. O’Hagan , 521 U. S. 642, 651 (1997)). We do not here modify Dabit

.
A
We reach this interpretation of the Litigation Act for several reasons. First, the Act focuses upon transactions in covered securities, not upon transactions in uncovered securities. An interpretation that insists upon a material
connection with a transaction in a covered security is
consistent with the Act’s basic focus. Second, a natural reading of the Act’s language supports our interpretation. The language requires the dismissal of a state-law-based class action where a private party alleges a “misrepresentation or omission of a material fact” (or engages in other forms of dece ption, not relevant here) “inconnection with the purchase or sale of a covered security.” §78bb(f)(1). The phrase “material fact in connection with the purchase or sale” suggests a connection that matters. And for present purposes, a connection matterswhere the misrepresentation makes a significant difference to someone’s decision to purchase or to sell a covered security, not to purchase or to sell an uncovered security, something about which the Act expresses no concern. See generally Matrixx Initiatives, Inc. v. Siracusano , 563 U. S. ___, ___ (2011) (slip op., at 9–12) (a misrepresentation or
omission is “material” if a reasonable investor would haveconsidered the information significant when contemplating a statutorily relevant inve stment decision). Further, the “someone” making that decision to purchase or sell must be a party other than the fraudster. If the only party who decides to buy or sell a covered security as a result of a lie is the liar, that is not a “connection” that matters. Third, prior case law supports our interpretation. As far as we are aware, every securities case in which this Court has found a fraud to be “in connection with” a purchase or sale of a security has involved victims who took, who tried10 CHADBOURNE & PARKE LLP v. TROICE

Opinion of the Court

to take, who divested themselv es of, who tried to divest themselves of, or who maintained an ownership interest in
financial instruments that fall within the relevant statutory definition. See, e.g. , Dabit

, supra , at 77 (Litigation
Act: victims were “holders” of covered securities that the defendant’s fraud caused to become overvalued); SEC v. Zandford , 535 U. S. 813, 822 (2002) (§10(b): victims were “duped into believing” that the defendant would “ ‘invest’ their assets in the stock market”); Wharf (Holdings) Ltd.

v. United Int’l Holdings, Inc. , 532 U. S. 588, 592 (2001) (§10(b): victim purchased an oral option to buy 10% of a company’s stock); O’Hagan

, supra , at 655–656 (§10(b): victims were “members of the investing public” harmed by the defendant’s “gain[ing of an] advantageous market position” through insider trading); Superintendent of Ins. of N. Y. v. Bankers Life & Casualty Co. , 404 U. S. 6, 10 (1971) (§10(b): victim was “injured as an investor” when the fraud deprived it of “compensation for the sale of its valuable block of securities”). We have found no Court case involving a fraud “in connection with” the purchase or sale of a statutorily defined security in which the victims did not fit one of these descriptions. And the dissent apparently has not either. Although the dissent characterizes our approach as “new,” post , at 3, and tries to describe several of our prior cases, such as Zanford or Dabit , in a different way, post , at 14–15, it cannot escape the fact that every case it cites involved a victim who took, tried to take, or maintained an ownership position in the statutorily relevant securities through “purchases” or “sales” induced by the fraud. E.g.

, Zandford

, supra , at 815, 820 (fraudster told customers he would “ ‘conservatively invest’ their money” in the stock
market and made sales of “his customer’s securities,” but pocketed the proceeds (emphasis added)); Dabit

, supra , at 76, 85, 89 (the “misrepresentations and manipulative tactics caused [the plaintiffs] to hold onto overvalued11 Cite as: 571 U. S. ____ (2014)

Opinion of the Court

securities” while also induci ng third parties to trade them); In re Orlando Joseph Jett , 82 S. E. C. Docket 1211, 1236–1237 (2004) (trader’s scheme “greatly inflated the reporting trading profits” that his firm “used to determine . . . the amount of capital he was permitted to commit on the firm’s behalf ” (emphasis added)).Fourth, we read the Litigation Act in light of and consistent with the underlying regulatory statutes, the Securities Exchange Act of 1934 and the Securities Act of 1933.The regulatory statutes refer to persons engaged in securities transactions that lead to the taking or dissolving of ownership positions. And they make it illegal to deceive a person when he or she is doing so. Section 5 of the 1933 Act, for example, makes it unlawful to “offer to sell or offer to buy . . . any security, unless a registration statement has been filed as to such security.” 15 U. S. C. §77e(c).
Section 17 of the 1933 Act makes it unlawful “in the offer or sale of any securities . . . to employ any device, scheme, or artifice to defraud, or to obtain money or property by means of any untrue statement of a material fact.” §§77q(a)(1)–(2). And §10(b) of the 1934 Act makes itunlawful to “use or employ, in connection with the purchase or sale of any security . . . any manipulative or deceptive device or contrivance.” §78j(b). Not only language but also purpose suggests a statutory focus upon transactions involving the statutorily relevantsecurities. The basic purpose of the 1934 and 1933 regulatory statutes is “to insure honest securities markets and thereby promote investor confidence.” See O’Hagan

, su

pra , at 658. Nothing in the regulatory statutes suggests their object is to protect pe rsons whose connection with the statutorily defined securities is more remote than words such as “buy,” “sell,” and the like, indicate. Nordoes anything in the Litigation Act provide us with reasons for interpreting its similar language more broadly. The dissent correctly points out that the federal securi­12 CHADBOURNE & PARKE LLP v. TROICE

Opinion of the Court

ties laws have another purpose, beyond protecting investors. Namely, they also seek to protect securities issuers

, as well as the investment advisers, accountants, andbrokers who help them sell financial products, from abusive class-action lawsuits. Post

, at 5. Both the PSLRA and the Litigation Act were ena cted in service of that goal. By imposing heightened pl eading standards, limiting damages, and pre-empting state-law suits where the claims pertained to covered securities, Congress sought to reduce frivolous suits and mitigate legal costs for firmsand investment professionals that participate in the market for nationally traded securities.We fail to see, however, how our decision today undermines that objective. The dissent worries our approach will “subject many persons and entities whose profession it is to give advice, counsel, and assistance in investing in the securities markets to complex and costly state-law litigation.” Post , at 4. To the contrary, the only issuers, investment advisers, or accountants that today’s decision will continue to subject to state-law liability are those who do not sell or participate in selling securities traded on

U. S. national exchanges. We concede that this means a bank, chartered in Antigua and whose sole product is a fixed-rate debt instrument not traded on a U. S. exchange, will not be able to claim the benefit of preclusion under the Litigation Act. But it is di fficult to see why the federal

securities laws would be—or should be—concerned with shielding such entities from lawsuits. Fifth, to interpret the ne cessary statutory “connection” more broadly than we do here would interfere with state efforts to provide remedies for victims of ordinary statelaw frauds. A broader interpretation would allow the Litigation Act to cover, and thereby to prohibit, a lawsuitbrought by creditors of a small business that falsely represented it was creditworthy, in part because it owns or intends to own exchange-traded stock. It could prohibit a13 Cite as: 571 U. S. ____ (2014)

Opinion of the Court

lawsuit brought by homeowners against a mortgage broker for lying about the interest rates on their mortgages— if, say, the broker (not the homeowners) later sold the mortgages to a bank which then securitized them in a pool and sold off pieces as “covere d securities.” Brief for Sixteen Law Professors as Amici Curiae 24. The dissent all but admits this. Its proposed rule is that whenever “the purchase or sale of the securities [including by the fraudster] is what enabl es the fraud,” the Litigation Act pre-empts the suit. Post

, at 12. In other words, any time one person convinces another to loan him money, by pretending he owns nationally traded securities or willacquire them for himself in the future, the action constitutes federal securities fraud , is subject to federal enforcement, and is also precluded by the Litigation Act if it qualifies as a “covered class action” under §78bb(f )(5)(B) ( e.g. , involves more than 50 members). Leaving aside whether this would work a significant expansion of thescope of liability under the federal securities laws, it unquestionably would limit the scope of protection under state laws that seek to provide remedies to victims of garden-variety fraud. The text of the Litigation A ct reflects congressional care to avoid such results. Under numerous provisions, it purposefully maintains state legal authority, especially over matters that are primarily of state concern. See §§78bb(f )(1)(A)–(B) (limiting preclusion to lawsuits involving “covered,” i.e.

, nationally traded, securities); §78bb(f )(4) (providing that the “securities commission . . . of any State shall retain jurisdiction under the laws of such State to investigate and bring enforcement actions”); §78bb(f )(3)(B) (preserving States’ authority to bring suits of the kind forbidden to private class-action plaintiffs). See also 112 Stat. 3227 (“Congress finds that . . . it is appropriate to enact national standards for securities class action lawsuits involving nationally traded securities,14 CHADBOURNE & PARKE LLP v. TROICE

Opinion of the Court

while preserving the appropriate enforcement powers of State securities regulators”). A broad interpretation of theLitigation Act works at cross-purposes with this stateoriented concern. Cf. Zandford

, 535 U. S., at 820 (warning against “constru[ing]” the phra se “in connection with” “so broadly as to convert any common-law fraud that happens to involve securities into a violation of §10(b)”); Wharf (Holdings) Ltd. , 532 U. S., at 596 (recognizing that “ordinary state breach-of-contract claims” are “actions that lie outside the [Securities Exchan ge] Act’s basic objectives”).

B
Respondents and the Government make two important counterarguments. Respondents point to statements wehave made suggesting we should give the phrase “in connection with” a broad interpretation. In Dabit , for example, we said that the Court has consistently “espoused a broad interpretation” of “in co nnection with” in the contextof §10(b) and Rule 10b–5, and we added that the Litigation Act language similarly warranted a “broad construction.” 547 U. S., at 85–86. In Bankers Life , we said that, if a deceptive practice “touch[ es]” a securities transaction, it meets §10(b)’s “in connection with” requirement, 404

U. S., at 12, and in O’Hagan , we said the fraud and the purchase or sale of a security must simply “coincide.” 521

U. S., at 656. The idea, we explained in Zandford

, is thatthe phrase “should be ‘construed not technically and restrictively, but flexibly to ef fectuate its remedial purposes.’ ” 535 U. S., at 819 (quoting Affiliated Ute Citizens of
Utah v. United States , 406 U. S. 128, 151 (1972)). Every one of these cases, however, concerned a false statement (or the like) that was “material” to another individual’s decision to “pu rchase or s[ell]” a statutorily defined “security” or “covered security.” Dabit

, supra , at 75–77; Zandford

, supra , at 822; Wharf (Holdings) Ltd.

, supra , at 590–592; O’Hagan

, supra , at 655–657; Bankers15 Cite as: 571 U. S. ____ (2014)

Opinion of the Court

Life

, supra , at 10. And the relevant statements or omissions were material to a transa ction in the relevant securities by or on behalf of someone other than the fraudster. Second, the Government points out that §10(b) of the Securities Exchange Act also uses the phrase “in connection with the purchase or sale of any security.” 15 U. S. C.§78j(b). And the Government warns that a narrow interpretation of “in connection with” here threatens a similarly narrow interpretation there, which could limit the SEC’s enforcement capabilities. See Brief for United
States as Amicus Curiae 28. We do not understand, howeve r, how our interpretation could significantly curtail the SEC’s enforcement powers. As far as the Government has explained the matter, our interpretation seems perfectly consistent with past SEC practice. For one thing, we have cast no doubt on theSEC’s ability to bring enforcement actions against Stanford and Stanford International Bank. The SEC has already done so successfully. As we have repeatedly pointed out, the term “security” under §10(b) covers a wide range of financial products beyond those traded on national exchanges, apparently including the Bank’s certificates of deposit at issue in these cases. No one here denies that, for §10(b) purposes, the “material” misrepresentations by
Stanford and his associates were made “in connection with” the “purchases” of those certificates. We find it surprising that the dissent worries that our decision will “narro[w] and co nstric[t] essential protection for our national securities market,” post , at 3, and put
“frauds like the one here . . . not within the reach of federal regulation,” post

, at 11. That would be news to Allen Stanford, who was sentenced to 110 years in federal prison after a successful federal prosecution, and to Stanford International Bank, which was ordered to pay billions in federal fines, after the same. Frauds like the one here— including this fraud itself —will continue to be within the16 CHADBOURNE & PARKE LLP v. TROICE

Opinion of the Court

reach of federal regulation because the authority of the SEC and Department of Justice extends to all “securities,” not just to those traded on national exchanges. 15 U. S. C. §78c(a)(10); accord, §77b(a)(1), §80a–2(a)(36), §80b–2(a)(18). When the fraudster peddles an uncovered security like the CDs here, the Federal Government will havethe full scope of its usual powers to act. The only difference between our approach and that of the dissent, is that

we also preserve the ability for investors to obtain relief
under state laws when the fraud bears so remote a connection to the national securities market that no person actually believed he was taking an ownership position in
that market. Thus, despite the Government’s and the dissent’s hand wringing, neither has been able to point to an example of any prior SEC enforcement action brought during the past 80 years that our holding today would have prevented the SEC from bringing. At oral argument, the Government referred to an administrative proceeding, In re Richard

Line , 62 S. E. C. Docket 2879 (1996), as its best example.Our examination of the report of that case, however, indicates that the defendant was a fraudster to whom the fraud’s victims had loaned money, expecting that he would purchase securities on their behalf. Id. , at 2880 (“Linerepresented to investors that he would invest their nonadmitted assets in various securities, including U. S. Treasury notes, mutual fund shares, and collateralized debt obligations”); ibid. (“[He] fabricated account statements which falsely recited that securities had been purchased on behalf of certain investors”). The Government’s brief refers to two other proceedings as demonstrating the SEC’s broad §10(b) enforcement powers. Each, however, invo lved defrauded investors who had tried to take an ownership interest in the relevant
securities. Jett , 82 S. E. C. Docket, at 1251 (involving a §10(b) action where a defrauded trading firm’s “decision to17 Cite as: 571 U. S. ____ (2014)

Opinion of the Court

purchase or ‘invest’ in strips or bonds . . . stemmed directly from the activity that constituted the fraud”); In re D. S. Waddy & Co. , 30 S. E. C. 367, 368 (1949) (involving a §10(b) action where a broker “appropriated to his own use money paid to him by customers for securities purchases”).We have examined SEC records without finding any further examples.For these reasons, the dissent’s warning that our decision will “inhibit” “litigants from using federal law to police frauds” and will “undermi ne the primacy of federal law in policing abuses in the securities markets” rings
hollow. Post , at 4, 5. The dissent cannot point to one example of a federal securities action—public or private— that would have been permissible in the past but that our approach will disallow in the future. And the irony of the dissent’s position is that federal law would have precluded private recovery in these very suits, because §10(b) does not create a private right of action for investors vis-à-vis “secondary actors” or “aiders and abettors” of securities
fraud. Stoneridge Investment Partners , 552 U. S., at 152, 155; Central Bank of Denver

, 511 U. S., at 180; accord, Brief for Petitioners in No. 12–86, p. 46 (“Any federal securities action against Pe titioners would clearly run
afoul of Central Bank and Stoneridge ”); Brief for Respondents 48 (same); Brief for United States as Amicus Curiae 28 (same).

III
Respondents’ complaints specify that their claims restupon their purchases of uncovered, not of covered, securities. Our search for allegations that might bring their allegations within the scope of the Litigation Act reveals the following: (1) The first set of Texas plaintiffs alleged that they bought certificates of deposit from Stanford International Bank because they were told “the CDs issued by SIB18 CHADBOURNE & PARKE LLP v. TROICE

Opinion of the Court

were safer even than U. S. bank-issued CDs” and “could be redeemed at any time,” given that the Bank “only invested the money [ i.e.

, the Bank’s money obtained from its certificate sale proceeds] in safe, secure, and liquid assets.” App.

433. They claimed Stanford “touted the high quality of SIB’s investment portfolio,” and such falsehoods werematerial to their decision to purchase the uncovered certificates. Id. , at 444. (2) The second set of Texas plaintiffs contended that they, too, purchased the Bank’s certificates on the belief“that their money was being invested in safe, liquid investments.” Id.

, at 715. They alleged that the Bank’s marketing materials stated it devoted “the greater part of its assets” to “first grade investment bonds (AAA, AA+, AA) and shares of stock (of great reputation, liquidity, and credibility).” Id. , at 744 (emphasis deleted). (3) Both groups of Louisiana plaintiffs alleged that theywere induced to purchase the certificates based on misrepresentations that the Bank’s assets were “‘invested in a well-diversified portfolio of hi ghly marketable securitiesissued by stable governments, strong multinational companies and major international banks.’ ” Id.

, at 253, 345. And they claimed the “ ‘liquidity/marketability of SIB’s
invested assets’ ” was “the most important factor to provide security to SIB clients.” Id.

, at 254.These statements do not allege, for Litigation Act purposes, misrepresentations or omissions of material fact “in connection with” the “purchase or sale of a covered security.” At most, the complain ts allege misrepresentations
about the Bank’s ownership of covered securities— fraudulent assurances that the Bank owned, would own, or would use the victims’ money to buy for itself shares of covered securities. But the Bank is an entity that made the misrepresentations. The Bank is the fraudster, not the fraudster’s victim. Nor is the Bank some other person transacting (or refraining from transacting, see Dabit , 54719 Cite as: 571 U. S. ____ (2014)

Opinion of the Court

U. S., at 75–77) in covered se curities. And consequently,there is not the necessary “connection” between the materiality of the misstatements and the statutorily required “purchase or sale of a covered security.” See supra , at 8. A final point: The District Court found that one of the plaintiffs acquired Bank certificates “with the proceeds of selling” covered securities cont ained in his IRA portfolio. App. to Pet. for Cert. in No. 12–86, p. 70. The plaintiffs, however, did not allege that the sale of these covered securities (which were used to finance the purchase of the certificates) constituted any pa rt of the fraudulent scheme.Nor did the complaints allege that Stanford or his associates were at all interested in how the plaintiffs obtained the funds they needed to purchase the certificates. Thus, we agree with the Court of Appeals that “[u]nlike Bankers Life and Zandford , where the entirety of the fraud depended upon the tortfeasor convincing the victims of those
fraudulent schemes to sell their covered securities in order for the fraud to be accomplishe d, the allegations here are not so tied with the sale of covered securities.” 675 F. 3d, at 523. In our view, like that of the Court of Appeals, these sales constituted no relevant part of the fraud but
were rather incidental to it. For these reasons the Court of Appeals’ judgment is
affirmed.
It is so ordered._________________

_________________ 1 Cite as: 571 U. S. ____ (2014)

T HOMAS

, J., concurring



## SUPREME COURT OF THE UNITED STATES

Nos. 12–79, 12–86, and 12–88

CHADBOURNE & PARKE LLP, PETITIONER

12–79 v. SAMUEL TROICE ET AL

.

WILLIS OF COLORADO INCORPORATED, ET AL

., PETITIONERS

12–86 v. SAMUEL TROICE ET AL

.

PROSKAUER ROSE LLP, PETITIONER

12–88 v. SAMUEL TROICE ET AL

.

ON WRITS OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE FIFTH CIRCUIT

[February 26, 2014]

J USTICE T HOMAS , concurring.
I join the opinion of the Court on the understanding that the “misrepresentation[s] . . . of . . . material fact” alleged in this case are not properly considered “in connection
with” transactions in covered secu rities. 15 U. S. C. §78bb(f ) (1)(A). We have said that the statutory phrase “in connec

tion with” warrants a “broad interpretation,” Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit , 547 U. S. 71, 85 (2006), though not so broad as to reach any “common

law fraud that happens to involve securities,” see SEC

v. Zandford , 535 U. S. 813, 820 (2002). Considered in isolation, however, that phrase “is essentially ‘indetermi

nat[e]’ because connections, like relations, ‘stop nowhere.’ ”2 CHADBOURNE & PARKE LLP v. TROICE

T HOMAS

, J., concurring

Maracich v. Spears , 570 U. S. ___, ___ (2013) (slip op., at 9) (some internal quotation marks omitted). The phrase thus “provides little guidance without a limiting principle
consistent with the structure of the statute and its other provisions.” Ibid. As I understand it, the opinion of the Court resolves this case by applying a limiting principle to the phrase “in connection with ” that is “consistent with the statutory framework and design” of the Securities Litigation Uniform Standards Act of 1998, id., at ___ (slip op., at 10), and also consistent with our precedents._________________

_________________ 1 Cite as: 571 U. S. ____ (2014)

K ENNEDY

, J., dissenting



## SUPREME COURT OF THE UNITED STATES

Nos. 12–79, 12–86, and 12–88

CHADBOURNE & PARKE LLP, PETITIONER

12–79 v. SAMUEL TROICE ET AL

.

WILLIS OF COLORADO INCORPORATED, ET AL

., PETITIONERS

12–86 v. SAMUEL TROICE ET AL

.

PROSKAUER ROSE LLP, PETITIONER

12–88 v. SAMUEL TROICE ET AL

.

ON WRITS OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE FIFTH CIRCUIT

[February 26, 2014]

J USTICE K ENNEDY , with whom J USTICE A LITO joins, dissenting.
A number of investors purchased certificates of deposit (CDs) in the Stanford International Bank (SIB). For pur

poses of this litigation all accept the premise that Allen Stanford and SIB induced the investors to purchase the CDs by fraudulent representations. In various state and federal courts the investors filed state-law suits against persons and entities, includ ing attorneys, accountants, brokers, and investment advisers, alleging that they par

ticipated in or enabled the fraud. The defendants in the state-court suits removed the actions to federal court, where they were consolidated with the federal-court suits.2 CHADBOURNE & PARKE LLP v. TROICE

K ENNEDY

, J., dissenting

The defendants contended that the state-law suits are precluded under the terms of the Securities Litigation Uniform Standards Act of 1998 (SLUSA or Act), 15 U. S. C. §78bb(f)(1). As the investors prevailed in the Court of Appeals, they are the respondents here. The persons and
entities who were defendants in the state-law actions are the petitioners. The investors contend the state-law suits are not precluded by SLUSA, and the petitioners contend the suits are precluded. For purposes of determining SLUSA’s reach, all can agree that the CD purchases would not have been, without more, transactions regulated by that Act; for the CDs were

not themselves covered securiti es. As a result, in deter

mining whether the Act must be invoked, a further cir

cumstance must be considered: The investors purchased the CDs based on the misrep resentations that the CDs were, or would be, backed by investments in, among other assets, covered securities. What must be resolved, to determine whether the Act precludes the state-law suits at issue, is whether the misrepresentations regarding covered securities and the ensuing failure to invest in those securities were so related to the purchase of the CDs that the misrepresentations were “misrepresentation[s] or omission[s] of a material fact in connection with the purchase or sale of a covered security.” 15 U. S. C. §78bb(f)(1)(A). The opinion for the Court, it seems fair to say, adopts this beginning framework, and it is quite correct to do so.
The Court is further correct to view this litigation as in

volving a fraud of a type, scale, and perhaps sophistica

tion that has not yet been addressed in its precedents with respect to the applicability of the federal securities laws. It is the premise of this dissent that the more simple
frauds addressed in this Co urt’s precedents, where the Court did find fraud “in connection with the purchase or sale,” are applicable here. In those cases, as here, the3 Cite as: 571 U. S. ____ (2014)

K ENNEDY

, J., dissenting

immediate cause of loss to the victim of the fraud was not simply a purchase or sale but rather a fraud that depended on the purchase or sale of securities or the promise to do so. It is submitted that this litigation should not come out differently simply because the fraud here was so wide

spread that many investors we re misled by misrepresenta

tions respecting investments, or promised investments, in regulated securities in the markets. And it is necessary to caution that, in holding otherwise, the Court adopts a new approach, an approach which departs from the rules es

tablished in the earlier, albeit simpler, cases. And, as a consequence, today’s decision, to a serious degree, narrows and constricts essential protection for our national securi

ties markets, protection vital for their strength and in

tegrity. The result will be a lessened confidence in the market, a force for instability that should otherwise be countered by the proper interpretation of federal securities laws and regulations. Though the reasons supporting the Court’s opinion are set forth with care and clarity, this respectful dissent submits that established principles do not support its holding.

I
It must be determined whether the misrepresentations to the investors—misrepresentations that led them to buy CDs in the belief they could rely on the expertise and sophistication of Stanford and SIB in the national securi

ties markets—were “misrepresentation[s] or omission[s] of . . . material fact[s] in connection with the purchase or sale of a covered security.” 15 U. S. C. §78bb(f)(1). This is the central provision of SLUSA for purposes of this litigation. The Court’s precedents instruct that this language has broad application and must be construed flexibly in order to encompass new and ever more ingenious fraudulent
schemes. Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit , 547 U. S. 71, 85 (2006); SEC v. Zandford , 535 U. S.4 CHADBOURNE & PARKE LLP v. TROICE

K ENNEDY

, J., dissenting

813, 819 (2002). The Court has held that a material mis

representation is made “in connection with the purchase or sale” of a security when the “fraud coincided with the sales [or purchases] themselves.” Zandford

, supra , at 820. This significant language must apply here in order to implement two of Congress’ purposes in passing SLUSA. First, SLUSA seeks to preclu de a broad range of statelaw securities claims in order to protect those who advise, counsel, and otherwise assist investors from abusive and multiplicitous class actions de signed to extract settlements from defendants vulnerable to litigation costs. This, in turn, protects the integrity of the markets. Second, even as the Act cuts back on the availability of state-law securities claims, a fair interpretation of its language ensures robust federal regulation of the national securities markets. That is because, in designing SLUSA, Congress “imported the key phrase” from §10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Com

mission (SEC) Rule 10b–5, which provide a private cause of action, as well as SEC enforcement authority, for secu

rities fraud. Dabit , 547 U. S., at 79, 85. As a result, that language must be “ ‘presumed to have the same meaning’ ”
in SLUSA as it does in those contexts. Id., at 86. The Court’s narrow interpretation of the Act’s language will inhibit the SEC and litigants from using federal law to police frauds and abuses that undermine confidence in the national securities markets. Throughout the country, then, it will subject many persons and entities whose profession it is to give advice, counsel, and assistance in investing in the securities markets to complex and costly state-law litigation based on allegations of aiding or par

ticipating in transactions that are in fact regulated by the
federal securities laws.

A
Congress enacted SLUSA and its predecessor, the Pri

-5 Cite as: 571 U. S. ____ (2014)

K ENNEDY

, J., dissenting

vate Securities Litigation Re form Act of 1995, to reform “perceived abuses of the class-action vehicle in litigation involving nationally traded securities.” Dabit , 547 U. S., at 81. Congress found that these abuses were being used “to injure ‘the entire U. S. economy.’ ” Ibid. The Act and its predecessor together addressed these problems by limiting damages, imposing heightened pleading stand

ards, and, as most relevant here, precluding state-law claims involving nationally traded securities. 112 Stat. 3227; see S. Rep. No. 104–98, pp. 19–20 (1995); H. R. Rep. No. 105–640, p. 10 (1998); S. Rep. No. 105–182, pp. 3–4 (1998). In light of the Act’s objectives, the Act must be given a “broad construction,” because a “narrow reading of the statute would undercut the effectiveness” of Congress’
reforms. Dabit

, supra , at 86. Today’s decision does not heed that principle. The Court’s narrow reading of the statute will permit proliferatio n of state-law class actions, forcing defendants to defend against multiple suits in
various state fora. This stat e-law litigation will drive up legal costs for market participants and the secondary actors, such as lawyers, accountants, brokers, and advis

ers, who seek to rely on the stability that results from a national securities market regu lated by federal law. See Central Bank of Denver, N. A. v. First Interstate Bank of Denver, N. A. , 511 U. S. 164, 189 (1994). This is a serious burden to put on attorneys, accountants, brokers, and investment advisers nationwide; and that burden itself will make the national securities markets more costly and difficult to enter. The purpose of the Act is to preclude just these suits. By permitting the very state-law claims Congress intended to prohibit, the Court will undermine the primacy of federal law in policing abuses in the securi

ties markets.
The Court casts its rule as allowing victims to recover against secondary actors under state law when they would6 CHADBOURNE & PARKE LLP v. TROICE

K ENNEDY

, J., dissenting

not be able to recover under federal law due to Central

Bank

. Ante, at 12, 17. But in Dabit a unanimous Court rejected that conception of SLUSA. A federal-law claim was not available to the plaintiffs in Dabit because Blue Chip Stamps v. Manor Drug Stores , 421 U. S. 723 (1975), limited the Rule 10b–5 private right of action to purchas

ers and sellers, not holders. “[T]he Second Circuit held that SLUSA only pre-empts state-law class action claims brought by plaintiffs who have a private remedy under federal law.” 547 U. S., at 74. The Court held the oppo

site, “concluding that SLUSA pre-empts state-law holder
class-action claims.” Id., at 87. “It would be odd, to say the least,” the Court reasoned, “if SLUSA exempted that particularly troublesome subset of class actions from its pre-emptive sweep.” Id., at 86. The Court in Dabit also noted that SLUSA preclusion does not leave victims with “no” ability to “recover damages under state law.” Ante, at

2. Rather, “[i]t simply denies plaintiffs the right to use the class-action device to vindicate certain claims.” 547 U. S.,
at 87. The Court in Dabit precluded the suit at issue in order to effect the purpose of Blue Chip . By following the opposite course today, the Court revisits Dabit ’s logic and
undermines Central Bank

.
B
Congress intended to make “federal law, not state law, . . . the principal vehicle for asserting class-action securi

ties fraud claims.” Dabit

, supra , at 88. And a broad con

struction of the “in connection with” language found in
both SLUSA and Rule 10b–5 ensures an efficient and effective federal regulatory re gime, one equal to the task of deterring and punishing fraud and providing compensa

tion for victims. In undertaking regulation of the national markets during the Great Depression, Congress sought to elimi

nate the “abuses which were found to have contributed to7 Cite as: 571 U. S. ____ (2014)

K ENNEDY

, J., dissenting

the stock market crash of 1929 and the depression of the
1930’s.” SEC v. Capital Gains Research Bureau, Inc. , 375
U. S. 180, 186 (1963). “ ‘It requires but little appreciation . . . of what happened in this country during the 1920’s and 1930’s to realize how essential it is that the highest ethical standards prevail’ in every facet of the securities industry.” Id., at 186–187 (quoting Silver v. New York Stock Exchange , 373 U. S. 341, 366 (1963)). In the Securi

ties Exchange Act, Congress sought “ ‘to achieve a high standard of business ethics in the securities industry’ ” by “ ‘substitut[ing] a philosophy of full disclosure for the philosophy of caveat emptor .’ ” Affiliated Ute Citizens of
Utah v. United States , 406 U. S. 128, 151 (1972). To that end, Congress enacted §10(b) “to insure honest securities markets and thereby promote investor confidence.” United
States v. O’Hagan , 521 U. S. 642, 658 (1997). Investor confidence indicates fair dealing and integrity
in the markets. See Dabit

, supra , at 78; O’Hagan

, supra , at 658; see also Central Bank

, supra , at 188. It also is critical to achieving an efficien t market. The corollary to the principle that insider trading and other frauds have an “inhibiting impact on market participation” is that inves

tor confidence in strong federal regulation to prevent these abuses inspires participation in the market. See O’Hagan

, supra , at 659. Widespread market participation in turn facilitates efficient allocation of capital to the Nation’s companies. See also Central Bank

, supra , at 188.

C
Mindful of the ends of both SLUSA and Rule 10b–5, the Court’s precedents interpret the key phrase in both laws to mean that a “misrepresentation or omission of a mate

rial fact” is made “in connection with the purchase or sale” of a security when the “fraud coincided with the sales [or purchases] themselves.” Zandford , 535 U. S., at 820; see
also Dabit

, supra , at 85.8 CHADBOURNE & PARKE LLP v. TROICE

K ENNEDY

, J., dissenting

This litigation is very similar to Zandford and satisfies the coincides test it sets forth, and for similar reasons. In Zandford , the SEC brought a civil action against a broker, who, over a period of time, gained control of an investment account, sold its securities, and then pocketed the pro

ceeds. 535 U. S., at 815–816. The broker argued that “the sales themselves were perfectly lawful and that the sub

equent misappropriation of the proceeds, though fraud

lent, is not properly viewed as having the requisite
connection with the sales.” Id. , at 820. The Court rejected that argument. Although the transactions were lawful and separate from the misappropriations, the two were “not independent events.” Ibid. Rather, the fraud “coin

cided with the sales,” in part because the sales “fur

ther[ed]” the fraud. Ibid.
The Court likened the broker’s fraud to that in Superin

tendent of Ins. of N. Y. v. Bankers Life & Casualty Co. , 404
U. S. 6, 10 (1971), where the fraud victims were misled to believe that they “would receive the proceeds of the
sale” of securities. Zandford , 535 U. S., at 821. Like the
victims in Bankers Life , the victims in Zandford “were injured as investors through [the broker]’s deceptions” because “[t]hey were duped into believing that [the broker] would ‘conservatively invest’ their assets in the stock market and that any transactions made on their behalf
would be for their benefit.” Id. , at 822. Both suffered losses because they were victims of dishonest intermediar

ies or fiduciaries. See also In re Richard J. Line , 62
S.E.C. Docket 2879 (1996) (broker who induced parents to
transfer funds to him to invest in securities so as to tem

porarily hide them during the college financial aid applica

tion process, but then failed to return the money, violated Rule 10b–5). Here, just as in Zandford , the victims parted with their money based on a fraudster’s promise to invest it on their behalf by purchases and sales in the securities markets.9 Cite as: 571 U. S. ____ (2014)

K ENNEDY

, J., dissenting

The investors had—or were led to believe they could have—the advantages of Stanf ord’s and SIB’s expertise in investments in the national market. So here, as in Zandford , the success of the fraud turned on the promise to trade in regulated securi ties. According to the com

plaints, SIB represented that it would “ ‘re-inves[t]’ ” the plaintiffs’ money on their be half in “a well-diversified portfolio of highly marketable securities issued by stable national governments, strong multinational companies, and major international banks” to ensure a “safe, liquid,” and above-market return. See App. 244, 249, 250, 253, 336, 342, 345, 444, 470, 480, 628. The misrepresentation was about nationally traded securities and lent credence to SIB’s promise that the CDs were a liquid investment that “could be redeemed with just a few days’ notice.” See
id. , at 253, 345, 445, 628. The CDs, SIB explained, would be backed by nationally traded securities. As a result, according to the complaints, the misrepresentation was
“material.” Id. , at 244–245, 336–338, 480, 715. The fraud could not have succeeded without the misrepresentation: The investors gave SIB money because they expected it to
be invested in the national securities markets. The con

nection between the promised purchases and the misrep

resentation is more direct than in Zandford , because the misrepresentation was essential to the fraud. Here, and again just as in Zandford , the fraud was not complete until the representation about securities transac

tions became untrue, just as Stanford intended all along. Instead of purchasing covered securities, SIB purchased
some but fewer covered securi ties than it promised—only 10% of its portfolio, according to an affidavit attached to a complaint—and primarily speculated in Caribbean real estate. Brief for Respondents 37; App. 594; but see Tr. of Oral Arg. 43–44 (suggesting SI B did not purchase securi

ties). It was not until SIB rendered the CDs illiquid by failing to make substantial investments in the nationally10 CHADBOURNE & PARKE LLP v. TROICE

K ENNEDY

, J., dissenting

traded securities it promised that the fraud was consum

mated. At that point, SIB blocked the plaintiffs’ access to the market. The fraud and SIB’s failure to purchase all that it promised were not independent events. Rather, the false promises to invest in covered securities enabled and furthered the CD fraud. Without the false promise, there would have been no money to purchase the covered securi

ties. On these facts, this Court’s controlling precedents instruct that these misreprese ntations were made “in con

ection with the purchase or sale” of regulated securi

ties; and, as a result, state-law claims concerning them should be precluded.
Dabit provides further support for this conclusion. There, the Court held that an investment bank that de

ceived brokers into advising their clients to hold covered securities made misrepresentations “in connection with the purchase or sale of a covered security.” “Under our precedents,” the Court explained, “it is enough that the fraud alleged ‘coincide’ with a securities transaction— whether by the plaintiff or by someone else.” 547 U. S., at

85. It did not matter that the plaintiffs did not purchase or sell securities, because they were participants in the national markets: “The requisite showing, in other words,”
is “ ‘deception “in connection with the purchase or sale of any security,” not deception of an identifiable purchaser or
seller.’ ” Ibid. (quoting O’Hagan , 521 U. S., at 658). Here, for like reasons, it does not matter that the fraud victims, as opposed to Stanford and SIB, were not the ones to fail to invest in the market. The very essence of the fraud was to induce purchase of the CDs on the (false) promise that investors should rely on SIB’ s special skills and expertise in making market investments in covered securities on their behalf. If promises rela ted to covered securities are integral to the fraud in this direct way, federal regula

tion is necessary if confidence in the market is to be
maintained.11 Cite as: 571 U. S. ____ (2014)

K ENNEDY

, J., dissenting

That interest is at stake here. Because confidence in the ability to act as an investor without diversion of funds by intermediaries and insiders is critical, it does not matter if the victim of a fraud does not purchase or sell a security,
Dabit

, supra , at 85; or if the sale or purchase does not occur at the same time as the deception, Bankers Life , 404
U. S., at 12–13; or if no party to the actual transaction is deceived by the fraud, O’Hagan

, supra , at 656; or if the misrepresentation has nothing to do with the value of a covered security, Zandford , 535 U. S., at 820. An inves

tor’s confidence in the mark et, and willingness to partici

pate in it, may be severely undermined if frauds like the one here are not within the reach of federal regulation.
Frauds like this one undermine investor confidence in attorneys, accountants, brokers, and investment advisers, the intermediaries on whom investors depend to gain access to the market. And when frauds are as widespread as this one, the market as a whole is weakened because investors, including sophisticated ones, are misled as to
the amount of funds committed to the market and its consequent stability and resilience. The rule that SLUSA applies when a misrepresentation about the market is coincident to the fraud is, then, essen

tial to the framework of the Act and to federal securities regulation. Fraudulent practices “ ‘constantly vary,’ ” and

“ ‘practices legitimate for some purposes may be turned to illegitimate and fraudulent means.’ ” Bankers Life

, supra , at 12. That is why the key language “should be construed not technically and restrictively, but flexibly to effectuate its remedial purposes.” Zandford

, supra , at 819 (internal quotation marks omitted); see Affiliated Ute , 406 U. S., at

151. The language merits a “broad interpretation” be

cause it is part of a residuary provision that must be able to accommodate evolving methods of fraud by intermediar

ies and insiders in ever more complicated securities mar

kets. Central Bank , 511 U. S., at 174. Its interpretation12 CHADBOURNE & PARKE LLP v. TROICE

K ENNEDY

, J., dissenting

should not privilege fraudsters who devise ever more devious methods of committing fraud involving covered
securities. At the same time, the submi tted interpretation is not so broad as to “convert every common-law fraud that hap

pens to involve securities into a violation of §10(b)” or preclude all state tort claims that involve securities in a tangential way. Zandford

, supra , at 820. So, for example, the statutory language does not extend to cover a thief who steals money from a store to buy securities or to a
fraudster who defrauds a bank for a loan that he uses to buy securities. See O’Hagan

, supra , at 656. The victims in those cases are not concerned about their ability to act
as investors but rather about their duties as a store clerk
or a loan officer. Those frauds involve securities transac

tions only as happenstance. As a result, the interpretation
submitted in this dissent strikes the balance that Con

gress intended between forbidding frauds by intermediar

ies in the market without reaching frauds that touch the markets in only tangential ways. The key question is whether the misrepresentation coincides with the purchase or sale of a covered security or the purchase or sale of the securities is what enables the fraud. Stanford’s misrepre sentation did so. Stanford promised to purchase covered securities for investors, using his special expertise, thus allowing investors to rely on his skill to participate in the national securities mar

kets. The entire scheme rested on investors falling for the
trick. When covered securities are so integral to the fraud, the false promise is incident to the purchase or sale of regulated securities because it coincides with it, and the misrepresentation respecting national securities enabled
the fraud.

D
The Court interprets the phrase “misrepresentation or13 Cite as: 571 U. S. ____ (2014)

K ENNEDY

, J., dissenting

omission of a material fact in connection with the pur

chase or sale of a covered security”—the key phrase in
SLUSA and Rule 10b–5—in a different manner. The result, it is submitted, is inconsistent with the statutory scheme Congress enacted and casts doubt on the applica

bility of federal securities law to cases of serious securities
fraud.
The Court construes the text of SLUSA and Rule 10b–5 to require a misrepresentation that “is material to a deci

sion by one or more individ uals (other than the fraudster) to buy or sell a ‘covered security.’ ” Ante , at 8. The Act simply does not say that the purchase or sale—or the promise to make a purchase or sale—must be by one other
than the fraudster. Rather the Act states that there must be “a misrepresentation or om ission of a material fact in connection with the purchase or sale of a covered secu

rity.” 15 U. S. C. §78bb(f)(1)(A). See 17 CFR §240.10b–5 (2013) (requiring an “untrue statement of a material fact” “in connection with the purchase or sale of any security”). The Court narrows the statute Congress wrote in two ways. It excises the important “in connection with” lan

guage, resulting in a confined reading inconsistent with the Act’s purpose, structure, and operation. And, by re

quiring the purchase or sale be made by someone “other than the fraudster,” the Court inserts a limiting phrase that nowhere appears in the language of the provisions. In litigation like this, this new rule has it upside down. When the violation that adversely affects the securities market is done by the fraudst er himself, that is all the more reason for applying federal law. This is not a case where Congress has limited its coverage to a certain sub

set of purchasers. Congress enacted such a limit twosubsections later in SLUSA when detailing which actions are not precluded. See 15 U. S. C. §78bb(f)(3)(A)(ii)(I) (“the purchase or sale of securities by the issuer or an affiliate of the issuer exclusively from or to holders of14 CHADBOURNE & PARKE LLP v. TROICE

K ENNEDY

, J., dissenting

equity securities of the issuer”) . But it did not do so in the provision at issue. The Court’s reconstruction of the language of the provi

sions also casts doubt on the applicability of federal securi

ties law to three established in stances of federal securities fraud and one instance of preclusion under the Act as adjudged by the Court and the SEC in earlier cases. First, the Court’s interpre tation necessarily suggests
that Zandford is incorrect and that dishonest brokers need not fear Rule 10b–5 liability. The deceit in Zandford was that the broker would act as the victim’s fiduciary when in fact he planned on selling (and did sell) the investor’s securities for his own benefit. 535 U. S., at 820; see also

Line , 62 S.E.C. Docket 2879 (broker’s deceit was false promise to buy). The Court’s rule that liability must rest on a finding that someone other than the fraudster pur

chased or sold securities is inconsistent with Zandford

, where the recipient of the misrepresentation did not buy or sell. The Court’s opinion disregards the hazards to the market when the fraudster is the one acting in the market and frustrates the investment objectives of his victims. Second, the Court’s interpretati on is difficult to reconcile with liability for insider trading. In O’Hagan , the Court
held that the “in connection with” element “is satisfied because the fiduciary’s fraud is consummated, not when the fiduciary gains the confidential information, but when, without disclosure to his principal, he uses the infor

mation to purchase or sell securities,” “even though the person or entity defrauded is not the other party to the trade.” 521 U. S., at 656. The Court’s requirement that someone other than the fraudster purchase or sell a secu

rity is hard to square with O’Hagan

. Third, the Court’s interpretation is difficult to square with the SEC’s position in In re Orlando Joseph Jett , 82
S.E.C. Docket 1211 (2004). There, the SEC held liable a trader who fabricated complex trades to supplement the15 Cite as: 571 U. S. ____ (2014)

K ENNEDY

, J., dissenting

returns of his real trades, so as to increase his standing in his company. The SEC likened Jett to “garden-variety
securities fraud cases in which a broker-dealer or invest

ment adviser engages in unsuccessful securities trades for a client and then hides the losses or inflates the profits by sending out false account statements.” Id. , at 1253. The decision of the Court today would require that Jett’s mis

representation led to the purchase or sale of securities by
someone other than Jett. But the SEC found Jett’s own purchases and sales to be sufficient to come within the
securities laws. Finally, the Court’s analysis is inconsistent with the unanimous opinion in Dabit , which interpreted the same statutory language at issue in this litigation. Dabit squarely rejected the view that “an alleged fraud is ‘in connection with’ a purchase or sale of securities only when the plaintiff himself was defrauded into purchasing or selling particular securities.” 547 U. S., at 85. Instead, it approved the SEC’s interp retation that a broker who

“ ‘sells customer securities with intent to misappropriate the proceeds’ ” satisfies the “in connection with the pur

chase or sale” requirement. Ibid. , n. 10. Dabit cannot be reconciled with today’s decisi on to require someone other than the fraudster buy or sell a security. It is correct that there is no case precisely standing for the proposition that a victim does not have to take an ownership position. However, O’Hagan supports that
view. O’Hagan clearly states that in insider trading cases “the person or entity defrauded is not the other party to the trade.” 521 U. S., at 656. And in Zandford a fraudster

told customers he would invest “their money” in securities and then sold those securities. 535 U. S., at 815. Here the fraudster told plaintiffs that he would “re-invest” “their” money in securities and then bought different securities. App. 250, 470, 715. The only difference is that there the fraudster sold and here he bought. Federal regulation16 CHADBOURNE & PARKE LLP v. TROICE

K ENNEDY

, J., dissenting

should not turn on whether a fraudster arrives before or after an investor makes his first purchase.

II
The Court’s interpretation also introduces confusion into securities law by not defining what it means for someone “other than the fraudster to buy or sell” a security, a rule
that it derives from its view that the precedents all involve victims who had an ownership interest in securities. Ante

, at 8–10. The precedents the Court cites involve what the parties have called direct ownership, where the victim buys or sells an entire equity. By using the term owner

ship interest instead of ownership, the Court also appears to accept the respondents’ co ncession that indirect owner

ship, where the victim buys or sells shares in a defendant fund that itself owns equities, is sufficient in certain cir

cumstances, such as when a victim has “some interest in the defendant’s supposed portfo lio.” Brief for Respondents

16.

An ownership rule distinguishing between different types of indirect ownership is unworkable. Indirect own

ership is a common type of investment. See M. Fink, The Rise of Mutual Funds 1 (2008) (U. S. mutual funds have
over 88 million American shar eholders and over $11 tril

lion in assets). Yet whethe r indirect ownership involves an interest in the underlying equities is a complex ques

tion of corporation, LLC, or partnership law. See In re Bernard L. Madoff Inv. Securities LLC , 708 F. 3d 422, 427 (CA2 2013). Congress likely did not intend preclusion of state-law suits to depend on the complexities of the Dela

ware Code. The Court’s ownership approach also casts doubt on the scope of Rule 10b–5. Under the Court’s interpretation, §10(b) applies to fraudulent mutual or hedge funds not
because those funds invest in securities but because in

vestments in the funds are securities. But not all such17 Cite as: 571 U. S. ____ (2014)

K ENNEDY

, J., dissenting

investments are securities. 2 L. Ribstein & R. Keatinge, Limited Liability Companies §14:2 (2010) (discussing test for a security from SEC v. W. J. Howey Co. , 328 U. S. 293 (1946)); 1 H. Bloomenthal & S. Wolff, Securities Law Handbook §§2:3 to 2:4 (2010). For those that are not, the
Court seems to envision liabilit y only when the investment confers an ownership interest in the fund’s securities. And the general rule for investments in funds organized as LLPs and LLCs is that they do not convey such claims. 1 Ribstein & Keatinge, supra , §7:11; see In re Herald , 730
F. 3d 112 (CA2 2013). As a result, in important instances Rule 10b–5 may not extend to mutual and hedge funds under the Court’s interpretation. It is true that the SEC pursued the fraudster with suc

cess here. But that is because the CDs are securities. See Order Denying Motion to Dismiss in SEC v. Stanford
International Bank , No. 3–09–CV–0298–N (ND Tex., Nov. 30, 2011), pp. 5–10. This aspect of Stanford’s fraud is not a necessary feature of all frauds involving funds similar
to SIB.

III
The fraudster in this litigat ion misrepresented that he would purchase nationally traded securities. That mis

representation was made “in connection with the purchase or sale” of the promised securities because it coincided with them. The fraud turned on the misrepresentation. The Court’s contrary interpreta tion excises the phrase “in connection with” from the Act, a phrase that the Court in earlier cases held to require a broad and flexible meaning. At the same time, by holding that the purchase or sale of securities be made by someone other than the fraudster, the Court engrafts a limitation that does not appear in the text. The result is to constrict the application of federal securities regulation in instances where dishonest brokers, insider traders, and lying employees purchase or sell18 CHADBOURNE & PARKE LLP v. TROICE

K ENNEDY

, J., dissenting

securities, or promise to do so, as part of the fraud. To

day’s decision introduces confusion in the enforcement of
securities laws. For these reasons, it is submitted that the judgment of the Court of Appeals should be reversed.