(Slip Opinion) OCTOBER TERM, 2013 1 

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 class actions “based

upon the statutory or common law of any State” in which 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). 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 uncovered securities (certificates of deposit in Stanford International Bank) that plaintiffs were purchasing

were backed by covered securities. The District Court dismissed each 

case under the Litigation Act. Although the certificates of deposit 

were not covered securities, the court concluded, the Bank’s misrepresentation that its holdings in covered securities made investments

in its uncovered securities more secure provided the requisite “connection” (under the Litigation Act) between the plaintiffs’ state-law

actions and transactions in covered securities. The Fifth Circuit reversed, concluding that the falsehoods 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 certiorari 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 “misrepresentation 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 individuals (other than the fraudster) to

purchase or sell a covered security. First, this interpretation is consistent with the Act’s basic focus on transactions in covered, not uncovered, 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 connection matters where the misrepresentation makes a significant difference 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. Third, the securities cases 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 Securities Exchange Act of 1934 (which also uses the “in connection with” 

phrase), have involved victims who took, who tried to take, who divested themselves 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., 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 regulatory statutes, the Securities Exchange Act of 1934 and the Securities Act of 1933, which refer to persons engaged in securities transactions that lead to the taking or dissolving 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 protect investor confidence in the securities markets. Nothing in those statutes, or in the Litigation Act, 

suggests their object is to protect persons whose connection with the 

statutorily defined securities is more remote than buying or selling. 

Fifth, a broader interpretation of the necessary statutory “connection” would interfere with state efforts to provide remedies for victims of ordinary state-law frauds, despite the fact that the Litigation

Act purposefully seeks to avoid such results by maintaining States’ 

legal authority over matters that are primarily of state concern, see, 

e.g., §§78bb(f)(4). Pp. 9–14.

(b) Respondents and the Government make two important, but unavailing, counterarguments. First, they point to this Court’s sugges-
 

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

Syllabus 

tions that the phrase “in connection with” should be given a broad interpretation. 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 “security” or “covered security,” e.g., Dabit, supra, 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 Exchange Commission’s enforcement powers under §10(b) of the Securities Exchange Act, which uses the same “in connection with the purchase 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 enforcement actions against Stanford and his associates, based on the 

Bank’s fraudulent sales of certificates of deposit—products that are

“securities” even if not “covered securities.” Neither the Government 

nor the dissent has pointed to an example of any prior SEC enforcement action that the instant holding would have prevented the SEC

from bringing. Pp. 14–17.

(c) Respondents’ complaints 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, they allege misrepresentations about the Bank’s ownership of covered securities. 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 misstatements and the statutorily required “purchase or sale of a covered 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 the certificates. Thus, those sales 

were only incidental to the fraud. Pp. 17–19. 

675 F. 3d 503, affirmed. 

BREYER, J., delivered the opinion of the Court, in which ROBERTS, 

C. J., and SCALIA, THOMAS, GINSBURG, SOTOMAYOR, and KAGAN, JJ., 

joined. THOMAS, J., filed a concurring opinion. KENNEDY, J., filed a dissenting opinion, in which ALITO, 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 to

notify 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]

 JUSTICE BREYER delivered the opinion of the Court. 

The Securities Litigation Uniform Standards Act of 

1998 (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 which 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 defines 
 

 

 

2 CHADBOURNE & PARKE LLP v. TROICE 

Opinion of the Court 

“class actions” as those involving more than 50 members.

See §78bb(f)(5). It defines “covered 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’ misrepresentations 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 KENNEDY, 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 prosecution 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 regulatory 
Cite as: 571 U. S. ____ (2014) 3 

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 similar “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, 179 
 

 

 

4 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 action

available 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 it 

creates 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 standards 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] listed, or authorized for listing,

on a national securities exchange,” §77r(b)(1) (or, though

not relevant here, as a security issued by an “investment 
Cite as: 571 U. S. ____ (2014) 5 

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 it 

is 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 based

on 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 fact

in connection with the purchase or sale of a covered security.” §78bb(f)(1)(A). Unless this phrase applies to the class

actions 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 that 

meet 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 the 
 

 

6 CHADBOURNE & PARKE LLP v. TROICE 

Opinion of the Court 

money it received to buy highly lucrative assets. But 

instead, Stanford and his associates used the money provided by new investors to repay 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 certificates by working as “investment advisers” affiliated with Stanford, or who provided 

Stanford-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. One 

group sued Willis of Colorado (and related Willis companies) and Bowen, Miclette & Britt, two insurance brokers; 

the other group sued Proskauer Rose and Chadbourne & 
Cite as: 571 U. S. ____ (2014) 7 

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 their 

cases 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 dismissal. The court recognized

that the certificates of deposit themselves were not “covered securities” under the Litigation Act, for they were not 

“‘traded nationally [or] listed 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 Circuit 

reversed. 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 to 
 

 

 

8 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 connection 

with” 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 alleged 

a “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 (citing 
Cite as: 571 U. S. ____ (2014) 9 

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 deception, not relevant here) “in

connection 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 matters 

where 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 have 

considered the information significant when contemplating a statutorily relevant investment 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 tried 
 

10 CHADBOURNE & PARKE LLP v. TROICE 

Opinion of the Court 

to take, who divested themselves 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 overvalued 
 

 

Cite as: 571 U. S. ____ (2014) 11 

Opinion of the Court 

securities” while also inducing 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 it 

unlawful 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 relevant 

securities. The basic purpose of the 1934 and 1933 regulatory statutes is “to insure honest securities markets and

thereby promote investor confidence.” See O’Hagan, supra, at 658. Nothing in the regulatory statutes suggests 

their object is to protect persons whose connection with 

the statutorily defined securities is more remote than 

words such as “buy,” “sell,” and the like, indicate. Nor 

does anything in the Litigation Act provide us with reasons for interpreting its similar language more broadly. 

The dissent correctly points out that the federal securi­
 

 

 

12 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, and 

brokers who help them sell financial products, from abusive class-action lawsuits. Post, at 5. Both the PSLRA 

and the Litigation Act were enacted in service of that goal.

By imposing heightened pleading 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 firms 

and 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 difficult to see why the federal

securities laws would be—or should be—concerned with 

shielding such entities from lawsuits. 

Fifth, to interpret the necessary 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 lawsuit 

brought 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 a 
Cite as: 571 U. S. ____ (2014) 13 

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 “covered 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 enables 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 will 

acquire 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 the

scope 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 Act 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 the

Litigation Act works at cross-purposes with this stateoriented concern. Cf. Zandford, 535 U. S., at 820 (warning

against “constru[ing]” the phrase “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 Exchange] Act’s basic objectives”). 

B 

Respondents and the Government make two important 

counterarguments. Respondents point to statements we 

have 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 connection with” in the context

of §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 that 

the phrase “should be ‘construed not technically and restrictively, but flexibly to effectuate 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 “purchase 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; Bankers 
 

 

Cite as: 571 U. S. ____ (2014) 15 

Opinion of the Court 

Life, supra, at 10. And the relevant statements or omissions were material to a transaction 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, however, 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 the 

SEC’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 constric[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 the 
 

16 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 have

the 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 (“Line

represented 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, involved 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 to 
 

 

Cite as: 571 U. S. ____ (2014) 17 

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 “undermine 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 Petitioners 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 rest

upon 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 SIB 
 

18 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 were 

material 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 they

were induced to purchase the certificates based on misrepresentations that the Bank’s assets were “‘invested in a 

well-diversified portfolio of highly marketable securities

issued 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 complaints 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, 547 
Cite as: 571 U. S. ____ (2014) 19 

Opinion of the Court 

U. S., at 75–77) in covered securities. 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 contained 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 part 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 accomplished, 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. 
_________________ 

_________________ 

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

THOMAS, 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]

 JUSTICE THOMAS, 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 securities. 15 U. S. C. §78bb(f ) 

(1)(A). We have said that the statutory phrase “in connection 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 “commonlaw fraud that happens to involve securities,” see SEC 

v. Zandford, 535 U. S. 813, 820 (2002). Considered in 

isolation, however, that phrase “is essentially ‘indeterminat[e]’ because connections, like relations, ‘stop nowhere.’” 
 

2 CHADBOURNE & PARKE LLP v. TROICE 

THOMAS, 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. 
_________________ 

_________________ 

 

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

KENNEDY, 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]

 JUSTICE KENNEDY, with whom JUSTICE ALITO joins,

dissenting. 

A number of investors purchased certificates of deposit 

(CDs) in the Stanford International Bank (SIB). For purposes 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, including attorneys, accountants,

brokers, and investment advisers, alleging that they participated 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 

KENNEDY, 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 securities. As a result, in determining whether the Act must be invoked, a further circumstance must be considered: The investors purchased 

the CDs based on the misrepresentations 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 involving a fraud of a type, scale, and perhaps sophistication 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 Court’s precedents, where the 

Court did find fraud “in connection with the purchase or 

sale,” are applicable here. In those cases, as here, the 
Cite as: 571 U. S. ____ (2014) 3 

KENNEDY, 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 widespread that many investors were misled by misrepresentations 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 established 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 securities markets, protection vital for their strength and integrity. 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 securities 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 

KENNEDY, J., dissenting 

813, 819 (2002). The Court has held that a material misrepresentation 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 preclude 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 designed 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 Commission (SEC) Rule 10b–5, which provide a private cause 

of action, as well as SEC enforcement authority, for securities 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 participating in transactions that are in fact regulated by the 

federal securities laws. 

A 

Congress enacted SLUSA and its predecessor, the Pri-
Cite as: 571 U. S. ____ (2014) 5 

KENNEDY, J., dissenting 

vate Securities Litigation Reform 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 standards, 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 proliferation of state-law class actions,

forcing defendants to defend against multiple suits in

various state fora. This state-law litigation will drive up 

legal costs for market participants and the secondary 

actors, such as lawyers, accountants, brokers, and advisers, who seek to rely on the stability that results from a

national securities market regulated 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 securities markets. 

The Court casts its rule as allowing victims to recover 

against secondary actors under state law when they would 
 

 

6 CHADBOURNE & PARKE LLP v. TROICE 

KENNEDY, 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 purchasers 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 opposite, “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 securities fraud claims.” Dabit, supra, at 88. And a broad construction of the “in connection with” language found in

both SLUSA and Rule 10b–5 ensures an efficient and 

effective federal regulatory regime, one equal to the task 

of deterring and punishing fraud and providing compensation for victims. 

In undertaking regulation of the national markets

during the Great Depression, Congress sought to eliminate the “abuses which were found to have contributed to 
 

 

Cite as: 571 U. S. ____ (2014) 7 

KENNEDY, 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 Securities 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 efficient market. The corollary to

the principle that insider trading and other frauds have an

“inhibiting impact on market participation” is that investor 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 material 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 

KENNEDY, 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 proceeds. 535 U. S., at 815–816. The broker argued that “the

sales themselves were perfectly lawful and that the subequent misappropriation of the proceeds, though fraudlent, 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 “coincided with the sales,” in part because the sales “further[ed]” the fraud. Ibid. 

The Court likened the broker’s fraud to that in Superintendent 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 intermediaries 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 temporarily hide them during the college financial aid application 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. 
 

Cite as: 571 U. S. ____ (2014) 9 

KENNEDY, J., dissenting 

The investors had—or were led to believe they could

have—the advantages of Stanford’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 securities. According to the complaints, SIB represented that it would “‘re-inves[t]’” the 

plaintiffs’ money on their behalf 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 connection between the promised purchases and the misrepresentation 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 transactions became untrue, just as Stanford intended all along.

Instead of purchasing covered securities, SIB purchased

some but fewer covered securities 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 SIB did not purchase securities). It was not until SIB rendered the CDs illiquid by

failing to make substantial investments in the nationally 
 

10 CHADBOURNE & PARKE LLP v. TROICE 

KENNEDY, J., dissenting 

traded securities it promised that the fraud was consummated. 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 securities. On these facts, this Court’s controlling precedents

instruct that these misrepresentations were made “in conection with the purchase or sale” of regulated securities; 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 deceived 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 related to covered securities are 

integral to the fraud in this direct way, federal regulation is necessary if confidence in the market is to be

maintained. 
 

 

Cite as: 571 U. S. ____ (2014) 11 

KENNEDY, 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 investor’s confidence in the market, and willingness to participate 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, essential 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” because it is part of a residuary provision that must be able

to accommodate evolving methods of fraud by intermediaries and insiders in ever more complicated securities markets. Central Bank, 511 U. S., at 174. Its interpretation 
 

12 CHADBOURNE & PARKE LLP v. TROICE 

KENNEDY, J., dissenting 

should not privilege fraudsters who devise ever more 

devious methods of committing fraud involving covered

securities. 

At the same time, the submitted interpretation is not so 

broad as to “convert every common-law fraud that happens 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 transactions only as happenstance. As a result, the interpretation

submitted in this dissent strikes the balance that Congress intended between forbidding frauds by intermediaries 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 misrepresentation 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 markets. 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 or 
 

 

Cite as: 571 U. S. ____ (2014) 13 

KENNEDY, J., dissenting 

omission of a material fact in connection with the purchase 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 applicability 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 decision by one or more individuals (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 omission of a material fact in 

connection with the purchase or sale of a covered security.” 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” language, resulting in a confined reading inconsistent with

the Act’s purpose, structure, and operation. And, by requiring 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 fraudster 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 subset of purchasers. Congress enacted such a limit two 

subsections 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 of 
 

14 CHADBOURNE & PARKE LLP v. TROICE 

KENNEDY, 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 provisions also casts doubt on the applicability of federal securities law to three established instances 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 interpretation 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 purchased 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 interpretation 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 information 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 security 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 the 
 

Cite as: 571 U. S. ____ (2014) 15 

KENNEDY, 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 investment 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 misrepresentation 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 interpretation that a broker who 

“‘sells customer securities with intent to misappropriate

the proceeds’” satisfies the “in connection with the purchase or sale” requirement. Ibid., n. 10. Dabit cannot be 

reconciled with today’s decision 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 regulation 
 

16 CHADBOURNE & PARKE LLP v. TROICE 

KENNEDY, 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 ownership interest instead of ownership, the Court also appears

to accept the respondents’ concession that indirect ownership, where the victim buys or sells shares in a defendant 

fund that itself owns equities, is sufficient in certain circumstances, such as when a victim has “some interest in 

the defendant’s supposed portfolio.” Brief for Respondents 

16. 

An ownership rule distinguishing between different 

types of indirect ownership is unworkable. Indirect ownership 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 shareholders and over $11 trillion in assets). Yet whether indirect ownership involves 

an interest in the underlying equities is a complex question 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 Delaware 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 investments in the funds are securities. But not all such 
 

 

Cite as: 571 U. S. ____ (2014) 17 

KENNEDY, 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 liability 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 success 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 litigation misrepresented that he

would purchase nationally traded securities. That misrepresentation 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 interpretation 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 sell 
 

18 CHADBOURNE & PARKE LLP v. TROICE 

KENNEDY, J., dissenting 

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