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Matched Legal Cases: ['§ 17', '§ 10', '§ 17', '§ 10', '§ 17', '§ 10', '§ 10', '§ 10', '§ 10', '§ 10', '§ 17', '§ 17', '§ 17', '§ 17', '§ 10', '§ 17', '§ 10', '§ 10', '§ 17', '§ 10', '§ 10', '§ 10', '§ 10', '§ 10', '§ 10', '§ 10', '§ 10', '§ 10', '§ 10', '§ 21', '§ 10', '§ 10', '§ 206', '§ 206', '§ 206', '§ 10', '§ 10', '§ 17', '§ 17', '§ 17', '§ 10', '§ 10', '§ 206', '§ 17', '§ 17', '§ 17', '§ 17', '§ 17', '§ 17', '§ 17', '§ 13', '§ 13', '§ 16', '§ 17', '§ 17', '§ 17', '§ 17', '§ 17', '§ 17', '§ 17', '§ 17', '§ 17', '§ 17', '§ 17', '§ 17', '§ 10', '§ 10', '§ 10', '§ 10', '§ 10', '§ 10', '§ 17', '§ 10', '§ 17', '§ 17', '§ 10', '§ 17', '§ 10', '§ 78', '§ 240', '§ 352', '§ 10', '§ 10', '§ 20', '§ 77', '§ 21', '§ 78', '§ 24', '§ 77', '§ 32', '§ 78', '§ 17', '§ 10', '§ 17', '§ 17', '§ 10', '§ 17', '§ 17', '§ 10']

AARON V. SEC, 446 U. S. 680 - Volume 446 - 1980 - Full Text - US Supreme Court Center - USSC Cases - Nolo
US Supreme Court Center > Volume 446 > AARON V. SEC, 446 U. S. 680 (1980) > Full Text
violations of three provisions -- § 17(a) of the 1933 Act, § 10(b) of the 1934 Act, and Commission Rule 10b-5 promulgated under that section of the 1934 Act. [Footnote 1] The gravamen of the charges against the petitioner was that he knew or had reason to know that the employees under his supervision were engaged in fraudulent practices, but failed to take adequate steps to prevent those practices from continuing. Before commencement of the trial, all the defendants except the petitioner consented to the entry of permanent injunctions against them.
Following a bench trial, the District Court found that the petitioner had violated and aided and abetted violations of § 17(a), § 10(b), and Rule 10b-5 during the Lawn-A-Mat sales campaign, and enjoined him from future violations of these provisions. [Footnote 2] The District Court's finding of past violations was based upon its factual finding that the petitioner had intentionally failed to discharge his supervisory responsibility to stop Schreiber and Jacobson from making statements to prospective investors that the petitioner knew to be false and misleading. Although noting that negligence alone might suffice to establish a violation of the relevant provisions in a Commission enforcement action, the District Court concluded that the fact that the petitioner
The Court of Appeals for the Second Circuit affirmed the judgment. 605 F.2d 612. Declining to reach the question whether the petitioner's conduct would support a finding of scienter, the Court of Appeals held instead that, when the Commission is seeking injunctive relief, "proof of negligence alone will suffice" to establish a violation of § 17(a), § 10(b), and Rule 10b-5. Id. at 619. With regard to § 10(b) and Rule 10b-5, the Court of Appeals noted that this Court's opinion in Ernst & Ernst v. Hochfelder, 425 U. S. 185, which held that an allegation of scienter is necessary to state a private cause of action for damages under § 10(b) and Rule 10b-5, had expressly reserved the question whether scienter must be alleged in a suit for injunctive relief brought by the Commission. Id. at 425 U. S. 194, n. 12. The conclusion of the Court of Appeals that the scienter requirement of Hochfelder does not apply to Commission enforcement proceedings was said to find support in the language of § 10(b), the legislative history of the 1934 Act, the relationship between § 10(b) and the overall enforcement scheme of the securities laws, and the "compelling distinctions between private damage actions and government injunction actions." [Footnote 3] For its holding that scienter
is not a necessary element in a Commission injunctive action to enforce § 17(a), the Court of Appeals relied on its earlier decision in SEC v. Coen, 581 F.2d 1020 (1978). There that court had noted that the language of § 17(a) contains nothing to suggest a requirement of intent, and that, in enacting § 17(a), Congress had considered a scienter requirement, but instead "opted for liability without willfulness, intent to defraud, or the like." Id. at 1027-1028. [Footnote 4] Finally, the Court of Appeals affirmed the District Court's holding that, under all the facts and circumstances of this case, the Commission was entitled to injunctive relief. 605 F.2d at 623-624.
We granted certiorari to resolve the conflict in the federal courts as to whether the Commission is required to establish scienter -- an intent on the part of the defendant to deceive, manipulate, or defraud [Footnote 5] -- as an element of a Commission enforcement action to enjoin violations of § 17(a), [Footnote 6] § 10(b), and Rule 10b-5. [Footnote 7] 444 U.S. 914.
"Whenever it shall appear to the Commission that any person is engaged or about to engage in any acts or practices which constitute or will constitute a violation of the provisions of this subchapter [e.g., § 17(a)], or of any rule or regulation prescribed under authority thereof, it may in its discretion, bring an action in any district court of the United States . . . to enjoin such acts or practices, and upon a proper showing a permanent or temporary injunction or restraining order shall be granted without bond."
a violation of the 1934 Act (e.g., § 10(b)), or regulations promulgated thereto (e.g., Rule 10b-5), and requires a district court, "upon a proper showing," to grant injunctive relief.
Another facet of civil enforcement is a private cause of action for money damages. This remedy, unlike the Commission injunctive action, is not expressly authorized by statute, but rather has been judicially implied. See Ernst & Ernst v. Hochfelder, 425 U.S. at 425 U. S. 196-197. Although this Court has repeatedly assumed the existence of an implied cause of action under § 10(b) and Rule 10b-5, see Ernst & Ernst v. Hochfelder, supra; Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723, 421 U. S. 730; Affiliated Ute Citizens v. United States, 406 U. S. 128, 406 U. S. 150-154; Superintendent of Insurance v. Bankers Life & Cas. Co., 404 U. S. 6, 404 U. S. 13, n. 9, it has not had occasion to address the question whether a private cause of action exists under § 17(a). See Blue Chip Stamps v. Manor Drug Stores, supra at 421 U. S. 733, n. 6.
present case was expressly reserved in Hochfelder, supra at 425 U. S. 193, n. 12, we nonetheless must be guided by the reasoning of that decision.
The conclusion in Hochfelder that allegations of simple negligence could not sustain a private cause of action for damages under § 10(b) and Rule 10b-5 rested on several grounds. The most important was the plain meaning of the language of § 10(b). It was the view of the Court that the terms "manipulative," "device," and "contrivance" -- whether given their commonly accepted meaning or read as terms of art -- quite clearly evinced a congressional intent to proscribe only "knowing or intentional misconduct." 425 U.S. at 425 U. S. 197-199. This meaning, in fact, was thought to be so unambiguous as to suggest that "further inquiry may be unnecessary." Id. at 425 U. S. 201.
The Court in Hochfelder nonetheless found additional support for its holding in both the legislative history of § 10(b) and the structure of the civil liability provisions in the 1933 and 1934 Acts. The legislative history, though "bereft of any explicit explanation of Congress' intent," contained "no indication . . . that § 10(b) was intended to proscribe conduct not involving scienter." Id. at 425 U. S. 201-202. Rather, as the Court noted, a spokesman for the drafters of the predecessor of § 10(b) described its function as a "catch-all clause to prevent manipulative devices.'" Id. at 425 U. S. 202. This description, as well as various passages in the Committee Reports concerning the evils to which the 1934 Act was directed, evidenced a purpose to proscribe only knowing or intentional misconduct. Moreover, with regard to the structure of the 1933 and 1934 Acts, the Court observed that, in each instance in which Congress had expressly created civil liability, it had specified the standard of liability. To premise civil liability under § 10(b) on merely negligent conduct, the Court concluded, would run counter to the fact that, wherever Congress intended to accomplish that result, it said so expressly and subjected such actions to significant procedural restraints not applicable to § 10(b).
Id. at 425 U. S. 206-211. Finally, since the Commission's rulemaking power was necessarily limited by the ambit of its statutory authority, the Court reasoned that Rule 10b.-5 must likewise be restricted to conduct involving scienter. [Footnote 8]
In our view, the rationale of Hochfelder ineluctably leads to the conclusion that scienter is an element of a violation of § 10(b) and Rule 10b-5, regardless of the identity of the plaintiff or the nature of the relief sought. Two of the three factors relied upon in Hochfelder -- the language of § 10(b) and its legislative history -- are applicable whenever a violation of § 10(b) or Rule 10b-5 is alleged, whether in a private cause of action for damages or in a Commission injunctive action under § 21(d). [Footnote 9] In fact, since Hochfelder involved an implied cause of action that was not within the contemplation of the Congress that enacted § 10(b), id. at 425 U. S. 196, it would be quite anomalous in a case like the present one, involving as it does the express remedy Congress created for § 10(b) violations, not to attach at least as much significance to the fact that the statutory language and its legislative history support a scienter requirement.
The issue in "Capital Gains" was whether, in an action for injunctive relief for violations of § 206(2), [Footnote 10] the Commission must prove that the defendant acted with an intent to defraud. The Court held that a showing of intent was not required. This conclusion rested upon the fact that the legislative history revealed that the
375 U.S. at 375 U. S. 91-192 (footnote omitted). To require proof of intent, the Court reasoned, would run counter to the expressed intent of Congress.
The Court added that its conclusion was "not in derogation of the common law of fraud." Id. at 375 U. S. 192. Although recognizing that intent to defraud was a necessary element at common law to recover money damages for fraud in an arm's length transaction, the Court emphasized that the Commission's action was not a suit for damages, but rather a suit for an injunction in which the relief sought was the "mild prophylactic" of requiring a fiduciary to disclose his transactions in stocks he was recommending to his clients. Id. at 375 U. S. 193. The Court observed that it was not necessary in a suit for "equitable or prophylactic relief" to establish intent, for "[f]raud has a broader meaning in equity [than at law] and intention to defraud or to misrepresent is not a necessary element." Ibid., quoting W. De Funiak, Handbook of Modern Equity 235 (2d ed.1956). Moreover, it was not necessary, the Court said, in a suit against a fiduciary such as an investment adviser, to establish all the elements of fraud that would be required in a suit against a party to an arm's length transaction. Finally, the Court took cognizance of a
375 U.S. at 375 U. S. 194. Unwilling to assume that Congress was unaware of these developments at common law, the Court concluded that they "reinforce[d]" its holding that Congress had not sought to require a showing of intent in actions to enjoin violations of § 206(2). Id. at 375 U. S. 195.
relief. [Footnote 11] We cannot, however, draw such guidance from Capital Gains for several reasons. First, wholly apart from its discussion of the judicial treatment of "fraud" at law and in equity, the Court in Capital Gains found strong support in the legislative history for its conclusion that the Commission need not demonstrate intent to enjoin practices in violation of § 206(2). By contrast, as the Court in Hochfelder noted, the legislative history of § 10(b) points towards a scienter requirement. Second, it is quite clear that the language in question in Capital Gains, "any . . . practice . . . which operates as a fraud or deceit," (emphasis added) focuses not on the intent of the investment adviser, but rather on the effect of a particular practice. Again, by contrast, the Court in Hochfelder found that the language of § 10(b) -- particularly the terms "manipulative," "device," and "contrivance" -- clearly refers to "knowing or intentional misconduct." Finally, insofar as Capital Gains involved a statutory provision regulating the special fiduciary relationship between an investment adviser and his client, the Court there was dealing with a situation in which intent to defraud would not have been required even in a common law action for money damages. [Footnote 12]
Affiliated Ute Citizens v. United States, 406 U.S. at 406 U. S. 151, quoting, SEC v. Capital Gains Research Bureau, 375 U.S. at 375 U. S. 195, the Court has also noted that "generalized references to the remedial purposes'" of the securities laws "will not justify reading a provision `more broadly than its language and the statutory scheme reasonably permit.'" Touche Ross Co. v. Redington, 442 U. S. 560, 442 U. S. 578, quoting, SEC v. Sloan, 436 U. S. 103, 436 U. S. 116. Thus, if the language of a provision of the securities laws is sufficiently clear in its context and not at odds with the legislative history, it is unnecessary "to examine the additional considerations of `policy' . . . that may have influenced the lawmakers in their formulation of the statute." Ernst & Ernst v. Hochfelder, 425 U.S. at 425 U. S. 214, n. 33.
not under § 17(a)(2) or § 17(a)(3). The language of § 17(a)(1), which makes it unlawful "to employ any device, scheme, or artifice to defraud," plainly evinces an intent on the part of Congress to proscribe only knowing or intentional misconduct. Even if it be assumed that the term "defraud" is ambiguous, given its varied meanings at law and in equity, the terms "device," "scheme," and "artifice" all connote knowing or intentional practices. [Footnote 13] Indeed, the term "device," which also appears in § 10(b), figured prominently in the Court's conclusion in Hochfelder that the plain meaning of § 10(b) embraces a scienter requirement. [Footnote 14] Id. at 425 U. S. 199.
425 U.S. at 425 U. S. 212.
unlawful for any person "to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit," (emphasis added) quite plainly focuses upon the effect of particular conduct on members of the investing public, rather than upon the culpability of the person responsible. This reading follows directly from Capital Gains, which attributed to a similarly worded provision in § 206(2) of the Investment Advisers Act of 1940 a meaning that does not require a "showing [of] deliberate dishonesty as a condition precedent to protecting investors." 375 U.S. at 375 U. S. 200.
It is our view, in sum, that the language of § 17(a) requires scienter under § 17(a)(1), but not under § 17(a)(2) or § 17(a)(3). Although the parties have urged the Court to adopt a uniform culpability requirement for the three subparagraphs of § 17(a), the language of the section is simply not amenable to such an interpretation. This is not the first time that this Court has had occasion to emphasize the distinctions among the three subparagraphs of § 17(a). In United States v. Naftalin, 441 U. S. 768, 441 U. S. 774, the Court noted that each subparagraph of § 17(a)
Sess. (Mar. 29, 1933). [Footnote 15] As originally drafted, § 13 would have made it unlawful for any person
See S. 875, 73d Cong., 1st Sess. (Apr. 27, 1933); S.Rep. No. 47, 73d Cong., 1st Sess., 4-5 (1933). The House Committee retained the original version of § 13, except that the word "willfully" was deleted from the beginning of the provision. [Footnote 16] See H.R. 5480, 73d Cong., 1st Sess., § 16(a) (May 4,
The Commission argues that the deliberate elimination of the language of intent reveals that Congress considered and rejected a scienter requirement under all three clauses of § 17(a). This argument, however, rests entirely on inference, for the Conference Report sheds no light on what the Conference Committee meant to do about the question of scienter under § 17(a). [Footnote 17] The legislative history thus gives rise to the equally plausible inference that the Conference Committee concluded that (1) in light of the plain meaning of § 17(a)(1), the language of intent -- "willfully" and "with intent to defraud" -- was simply redundant, and (2) with regard to § 17(a)(2) and § 17(a)(3), a "willful[ness]" requirement was not to be included. It seems clear, therefore, that the
legislative history, albeit ambiguous, may be read in a manner entirely consistent with the plain meaning of § 17(a). [Footnote 18] In the absence of a conflict between reasonably plain meaning and legislative history, the words of the statute must prevail. [Footnote 19]
This is not to say, however, that scienter has no bearing at all on whether a district court should enjoin a person violating or about to violate § 17(a)(2) or § 17(a)(3). In cases where the Commission is seeking to enjoin a person "about to engage in any acts or practices which . . . will constitute" a violation of those provisions, the Commission must establish a sufficient evidentiary predicate to show that such future violation may occur. See SEC v. Commonwealth Chemical Securities, Inc., 574 F.2d 90, 98-100 (CA2 1978) (Friendly, J.); 3 L. Loss, Securities Regulation, at 1976. An important factor in this regard is the degree of intentional wrongdoing evident in a defendant's past conduct. See SEC v. Wills, 472 F.Supp. 1250, 1273-1275 (DC 1978). Moreover, as the Commission recognizes, a district court may consider scienter or lack of it as one of the aggravating or mitigating factors to be taken into account in exercising its equitable discretion in deciding whether or not to grant injunctive relief. And the proper exercise of equitable discretion is necessary to ensure a "nice adjustment and reconciliation between the public interest and private needs." Hecht Co. v. Bowles, 321 U. S. 321, 321 U. S. 329.
The opinion of the District Court is reported in CCH Fed.Sec.L.Rep. � 96,043 (1977).
The term "scienter" is used throughout this opinion, as it was in Ernst & Ernst v. Hochfelder, 425 U. S. 185, 425 U. S. 194, n. 12, to refer to "a mental state embracing intent to deceive, manipulate, or defraud." We have no occasion here to address the question, reserved in Hochfelder, ibid., whether, under some circumstances, scienter my also include reckless behavior.
Compare, e.g., the present case and SEC v. Coven, 581 F.2d 1020 (CA2 1978) (scienter not required in Commission enforcement action under §§ 17(a)(1)-(3)), with Steadman v. SEC, 603 F.2d 1126 (CA5 1979) (scienter required in Commission disciplinary action under § 17(a)(1), but not under §§ 17(a)(2)-(3)), and with SEC v. Cenco Inc., 436 F.Supp. 193 (ND Ill.1977) (scienter required in Commission enforcement action under §§ 17(a)(1)-(3)).
Compare, e.g., the present case and SEC v. World Radio Mission, Inc., 544 F.2d 535 (CA1 1976) (scienter not required in Commission enforcement action under § 10(b) and Rule 10b-5), with SEC v. Blatt, 583 F.2d 1325 (CA5 1978) (scienter required in Commission enforcement action under § 10(b) and Rule 10b-5).
The Court in Hochfelder also found support for its conclusion as to the scope of Rule 10b-5 in the fact that the administrative history revealed that, "when the Commission adopted the Rule, it was intended to apply only to activities that involved scienter." 425 U.S. at 425 U. S. 212.
The third factor -- the structure of civil liability provisions in the 1933 and 1934 Acts -- obviously has no applicability in a case involving injunctive relief. It is evident, however, that the third factor was not determinative in Hochfelder. Rather, the Court in Hochfelder clearly indicated that the language of the statute, which is applicable here, was sufficient, standing alone, to support the Court's conclusion that scienter is required in a private damages action under § 10(b). Id. at 425 U. S. 201.
The Commission finds further support for its interpretation of § 10(b) as not requiring proof of scienter in injunctive proceedings in the fact that Congress was expressly informed of the Commission's interpretation on two occasions when significant amendments to the securities laws were enacted -- the Securities Act Amendments of 1975, Pub.L. 94-29, 89 Stat. 97, and the Foreign Corrupt Practices Act of 1977, Pub.L. 95 213, 91 Stat. 1494 -- and on each occasion, Congress left the administrative interpretation undisturbed. See S.Rep. No. 94-75, p. 76 (1975); H.R.Rep. No. 95-640, p. 10 (1977). But, since the legislative consideration of those statutes was addressed principally to matters other than that at issue here, it is our view that the failure of Congress to overturn the Commission's interpretation falls far short of providing a basis to support a construction of § 10(b) so clearly at odds with its plain meaning and legislative history. See SEC v. Sloan, 436 U. S. 103, 436 U. S. 119-121.
In addition, the Court in Hochfelder noted that the term "to employ," which appears in both § 10(b) and § 17(a)(1), is "supportive of the view that Congress did not intend § 10(b) to embrace negligent conduct." 425 U.S. at 425 U. S. 199, n. 20.
Since the language and legislative history of § 17(a) are dispositive, we have no occasion to address the "policy" arguments advanced by the parties. See Ernst & Ernst v. Hochfelder, 425 U.S. at 425 U. S. 214, n. 33.
(3) It bears mention that this dispute, though pressed vigorously by both sides, may be much ado about nothing. This is so because of the requirement in injunctive proceedings of a showing that "there is a reasonable likelihood that the wrong will be repeated." SEC v. Manor Nursing Centers, Inc., 458 F.2d 1082, 1100 (CA2 1975). Accord, SEC v. Keller Corp., 323 F.2d 397, 402 (CA7 1963). To make such a showing, it will almost always be necessary for the Commission to demonstrate that the defendant's past sins have been the result of more than negligence. Because the Commission must show some likelihood of a future violation, defendants whose past actions have been in good faith are not likely to be enjoined. See opinion of the Court, ante at 446 U. S. 701. That is as it should be. An injunction is a drastic remedy, not a mild prophylactic, and should not be obtained against one acting in good faith.
In keeping with the reasoning of Hochfelder, the Court places much emphasis upon statutory language and its assertedly plain meaning. The words "device, scheme, or artifice to defraud" in § 17(a)(1), and the words "manipulative or deceptive device or contrivance" in § 10(b), are said to connote "knowing or intentional misconduct." Ante at 446 U. S. 690, 446 U. S. 696. And this connotation, it is said, implicitly incorporates the requirement of scienter traditionally applicable in the common law of fraud. But there are at least two specific responses to this wooden analysis. First, it is quite unclear that the words themselves call for so restrictive a definition. Second, as the Court recognized in SEC v. Capital Gains Research Bureau, 375 U. S. 180 (1963), the common law requirement of scienter generally observed in actions for fraud at law was often dispensed with in actions brought before chancery.
The words of a statute, particularly one with a remedial object, have a "meaning imparted to them by the mischief to be remedied.'" St. Paul Fire & Marine Ins. Co. v. Barry, 438 U. S. 531, 438 U. S. 545 (1978), quoting Duparquet Co. v. Evans, 297 U. S. 216, 297 U. S. 221 (1936). Thus, antifraud provisions of securities legislation are to be construed "not technically and restrictively, but flexibly to effectuate [their] remedial purposes." SEC v. Capital Gains Research Bureau, 375 U.S. at 375 U. S. 195; Superintendent of Insurance v. Bankers Life & Cas. Co., 404 U. S. 6, 404 U. S. 12 (1971); Affiliated Ute Citizens v. United States, 406 U. S. 128, 406 U. S. 151 (1972). See also SEC v. C. M. Joiner Leasing Corp., 320 U. S. 344, 320 U. S. 350-351 (1943); United Housing Foundation, Inc. v. Forman, 421 U. S. 837, 421 U. S. 849-851 (1975). I have no doubt that the "mischief" confronting Congress in 1933 and 1934 included a large measure of intentional deceit and misrepresentation. The concern, however, ran deeper still, and Congress sought to develop a regulatory
framework that would ensure a free flow of honest, reliable information in the securities markets. This Court has recognized that it was Congress' desire "to substitute a philosophy of full disclosure for the philosophy of caveat emptor," and to place upon those in control of information the responsibility for misrepresentation. SEC v. Capital Gains Research Bureau, 375 U.S. at 375 U. S. 186; see, e.g., H.R.Rep. No. 85, 73d Cong., 1st Sess., 1-5 (1933); Securities Act: Hearings on S. 875 before the Senate Committee on Banking and Currency, 73d Cong., 1st Sess., 71 (1933). This step was perceived as a fundamental prerequisite to restoration of investor confidence sorely needed after the market debacles that helped to plummet the Nation into a major economic depression. See United States v. Naftalin, 441 U. S. 768, 441 U. S. 775 (1979).
Reading the language of § 17(a)(1) and § 10(b) with these purposes in mind, I am not at all certain -- although the Court professes to be -- that the language is incapable of being read to include misrepresentations that result from something less than willful behavior. The word "willfully," that Congress employed elsewhere in the securities laws when it wanted to specify a prerequisite of knowledge or intent, is conspicuously missing. [Footnote 2/1] Instead, Congress employed a variety of
of the Securities Exchange Act, 15 U.S.C. § 78o(c)(1), where it has been interpreted with congressional approval to apply to negligent acts and practices. See SEC Rule 15c-1-2, 17 CFR § 240.15c-1-2 (1979); H.R.Rep. No. 2307, 75th Cong., 3d Sess., 10 (1938). Moreover, "device" had been given broad definition in prior enactments. In Armour Packing Co. v. United States, 209 U. S. 56, 209 U. S. 71 (1908), the Court rejected the contention that its meaning in the Elkins Act, 32 Stat. 847, should be limited to conduct involving resort to underhanded, dishonest, or fraudulent means.
In my view, this evidence provides a stronger indication of congressional understanding of the term "device" than the dictionary definition on which the Court relies. Ante at 446 U. S. 696, n. 13; cf. Ernst Ernst v. Hochfelder, 425 U.S. at 425 U. S. 199, n. 20, [Footnote 2/2] At the very least, it fully counters the Court's bald assertion that the meaning of terms used in the antifraud provisions is sufficiently "plain" that statutory policy and administrative interpretation may be ignored in defining the scope of the legislation. See ante at 446 U. S. 695, 446 U. S. 700, n.19. Division in the lower courts over the issues before us is itself an indication that reasonable minds differ over the import of the terminology that Congress has used. I can agree with the Court that the language of the statutes is the starting point of analysis, but, at least in present circumstances, I strongly disagree with the conclusion that it is the ending point as well.
An additional and independent ground for disagreement with the Court's analysis is its utter failure to harmonize statutory construction with prevailing equity practice at the time the securities laws were enacted. On prior occasions, the Court has emphasized the relevance of common law principles in the interpretation of the antifraud provisions of the securities laws. See, e.g., Chiarella v. United States, 445 U. S. 222, 445 U. S. 227-229 (1980). See also Lanza v. Drexel & Co., 479 F.2d 1277, 1289-1291 (CA2 1973) (en banc). Yet in this case, the Court oddly finds those principles inapplicable. It specifically casts aside the fact that proof of scienter was not required in actions seeking equitable relief against fraudulent practices. This position stands in stark contrast with the Court's clear recognition of this separate equity tradition in SEC v. Capital Gains Research Bureau, 375 U. S. 180 (1963).
375 U.S. at 375 U. S. 193.
In particular, the Court observed that proof of scienter was one element of an action for damages that the equity courts omitted. Id. at 375 U. S. 193-194. See also Moore v.Crawford, 130 U. S. 122, 130 U. S. 128 (1889).
The Court purports to distinguish Capital Gains on the grounds that it involved a different statutory provision with somewhat different language, and that it stressed the confidential duties of investment advisers to their clients. Ante at 446 U. S. 693-695. These observations, in my view, do not weaken the relevance of the history on which the Court in Capital Gains relied. In fact, that history may be even more pertinent here. This case involves actual dissemination of material
false statements by a broker-dealer serving as market maker in the relevant security; Capital Gains involved an investment adviser's omission to state material facts. Because there was no affirmative misrepresentation in Capital Gains, the existence of a confidential duty arguably was necessary before the broker's silence could become the basis for a charge of fraud. Cf. Chiarella v. United States, 445 U.S. at 445 U. S. 228. Here, in contrast, the fraudulent nature of the underlying conduct is clear, and the only issue is whether the Commission may obtain the desired prophylactic relief.
The significance of this common law tradition, moreover, is buttressed by reference to state precursors of the federal securities laws. The problem of securities fraud was by no means new in 1933, and many States had attempted to deal with it by enactment of their own "blue-sky" statutes. When Congress turned to the problem, it explicitly drew from their experience. One variety of state statute, the so-called "fraud" laws of New York, New Jersey, Maryland, and Delaware, empowered the respective state attorneys general to bring actions for injunctive relief when fraudulent practices in the sale of securities were uncovered. See, e.g., Federal Securities Act, Hearings on H.R. 4314 before the House Committee on Interstate and Foreign Commerce, 73d Cong., 1st Sess., 95 (1933). Of these statutes, the most prominent was the Martin Act of New York, 1921 N.Y.Laws, ch. 649, N.Y.Gen.Bus.Law §§ 352-353 (Consol.1921), which had been fairly actively enforced. The drafters of the federal securities laws referred to these specific statutes as models for the power to seek injunctive relief that they requested for federal enforcement authorities. The experience of the State of New York, in particular, was repeatedly called to Congress' attention as an example for federal legislation to follow. [Footnote 2/3]
The Court dismisses all this evidence with the observation, ante at 446 U. S. 700, n. 18, that the specific holdings of cases like Federated Radio were not explicitly placed before Congress. Yet these were not isolated holdings or novel twists of law. They were part of an established, longstanding equity tradition the significance of which the Court has chosen simply to ignore. I am convinced that Congress was aware of this tradition, see n. 3, supra, and that, if it had intended to depart from it, it would have left more traces of that intention than the Court has been able to find. Cf. Hecht Co. v. Bowles, 321 U. S. 321, 321 U. S. 329 (1944) ("We are dealing here with the requirements of equity practice with a background of several hundred years of history").
The structural considerations that were advanced in support of the decision to require proof of scienter in a private action for damages, see Ernst Ernst v. Hochfelder, 425 U.S. at 425 U. S. 206-211, have no application in the present context. In Hochfelder, the Court noted that Congress had placed significant limitations on the private causes of action for negligence that were available under provisions of the 1934 Act other than § 10(b). Ibid. It concluded that the effectiveness of these companion statutes might be undermined if private plaintiffs sustaining losses from negligent behavior also could sue for damages under § 10(b). Id. at 425 U. S. 210. Obviously, no such danger is created by Commission-initiated actions for injunctive relief, and the Court admits as much. Ante at 446 U. S. 691, n. 9. [Footnote 2/4]
"knowing," "willful," and "good faith," when it wished to impose a state-of-mind requirement. The omission of such terms in statutory provisions authorizing the Commission to sue for injunctive relief contrasts sharply with their inclusion in provisions authorizing criminal prosecution. Compare § 20(b) of the 1933 Act, 15 U.S.C. § 77t(b), and § 21(d) of the 1934 Act, 15 U.S.C. § 78u(d), with § 24 of the 1933 Act, 15 U.S.C. § 77x, and § 32(a) of the 1934 Act, 15 U.S.C. § 78ff(a). Moreover, the Acts create other civil remedies that may be pursued by the Commission that do not include state-of-mind prerequisites. [Footnote 2/5] This pattern comports with Congress' expressed intent to give the Commission maximum flexibility to deal with new or unanticipated problems, rather than to confine its enforcement efforts within a rigid statutory framework. See, e.g., H.R.Rep. No. 1383, 73d Cong., 2d Sess., 7 (1934); S.Rep. No. 792, 73d Cong., 2d Sess., 5-6 (1934); 78 Cong.Rec. 8113 (1934).
Many lower courts have refused to go so far. Both before and after Hochfelder, they have rejected the contention that the Commission must prove scienter under either § 17(a) or § 10(b) before it can obtain injunctive relief against deceptive practices. [Footnote 2/6] Even those judges who anticipated Hochfelder by advocating a scienter requirement in private actions for money damages found no reason to place similar strictures on the Commission. See, e.g., SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 86-868 (CA2 1968) (concurring opinion), cert. denied sub nom. Coates v. SEC, 394 U. S. 76 (1969), cited with approval in Ernst & Ernst v. Hochfelder, 425 U.S. at 425 U. S. 197, 425 U. S. 211, 425 U. S. 213, 425 U. S. 214.
The reasons for this refusal to limit the Commission's authority are not difficult to fathom. As one court observed in the context of § 17(a), "[i]mpressive policies" support the need for Commission authority to seek prophylactic relief against misrepresentations that are caused by negligence, as well as those that are caused by deliberate swindling. SEC v. Coven, 581 F.2d 1020, 1027 (CA2 1978), cert. denied, 440 U.S. 950 (1979). False and misleading statements about securities "can be instruments for inflicting pecuniary loss more potent than the chisel or the crowbar." United States v. Benjamin, 328 F.2d 854, 863 (CA2), cert. denied sub nom. Howard v. United States, 377 U.S. 953 (1964). And when misinformation causes loss, it is small comfort to the investor to know that he has been bilked by negligent mistake, rather than by fraudulent design, particularly when recovery of his loss has been foreclosed by this Court's decisions. [Footnote 2/7] As the reported cases illustrate, injunctions against negligent dissemination of misinformation play an essential role in preserving market integrity and preventing serious financial loss.
See, e.g., SEC v. World Radio Mission, Inc., 544 F.2d 535, 540-541 (CA1 1976); SEC v. Management Dynamics, Inc., 515 F.2d 801, 809 (CA2 1975); SEC v. Manor Nursing Centers, Inc., 458 F.2d 1082, 1095-1097 (CA2 1972). [Footnote 2/8]
I thus arrive at the conclusion that statutory language does not compel the judgment reached by the Court, while considerations of history, statutory structure, legislative purpose, and policy all strongly favor an interpretation of § 17(a) and § 10(b) that permits the Commission to seek injunctive relief without first having to prove scienter. In my view, this conclusion is fortified by the fact that Congress has approved it in a related context [Footnote 2/9]. Because I find nothing
The Court suggests that no meaning should be attributed to these events, because Congress never explained its reasons for deleting this explicit state-of-mind language. Ante at 446 U. S. 699-700. But the Conference Report, which discussed differences between the House bill and the Conference substitute, noted that the conferees had adopted from the Senate bill several "minor and clarifying changes" that were intended "to make clear and effective the administrative procedure provided for and to remove uncertainties" concerning the powers of the Commission. H.R.Conf.Rep. No. 152, 73d Cong., 1st Sess., 24 (1933). If the Court were correct in its interpretation of § 17(a)(1), retention of the Senate's explicit state-of-mind language undoubtedly would have added clarity to congressional intent. In light of the other changes to which the House acceded, it is thus difficult, on the Court's theory, to understand why this change would not have been adopted as well. Moreover, Congress was well aware of the significance that addition or deletion of these terms would have. See 77 Cong.Rec. 2994 (1933) (colloquy between Sens. Fess and Fletcher); id. at 2919 (remarks of Rep. Rayburn). It is also noteworthy that, when the 1934 Act was under consideration, a proposal was placed before Congress to amend § 17(a) to limit it to conduct that was undertaken "willfully and with intent to deceive." 78 Cong.Rec. 8703 (1934). The proposal was voted down. Id. at 8708.
Nor is there any danger that actions for prophylactic relief brought by the Commission will result in the "broadening of the class of plaintiff who may sue in this area of the law,'" that has been an animating concern of the Court's decisions limiting the scope of private damages actions under § 10(b). Ernst & Ernst v. Hochfelder, 425 U. S. 185, 425 U. S. 214, n. 33 (1976), quoting Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723, 421 U. S. 747-748 (1975). Compare Ultramares Corp. v. Touche, 255 N.Y. 170, 179-180, 174 N.E. 441, 444 (1931), with People v. Federated Radio Corp., 244 N.Y. 33, 154 N.E. 655 (1926).
H.R.Rep. No. 95-640, p. 10 (1977). As expressions of later Congresses, these statements, of course, do not control the meaning of provisions enacted in 1933 and 1934. Yet the views of a subsequent Congress are entitled to some weight, particularly when that Congress undertakes significant revision of the statute but leaves the disputed provision intact. Cf., e.g., Andrus v. Allard, 444 U. S. 51, 444 U. S. 59, n. 10 (1979); United States v. Rutherford, 442 U. S. 544, 442 U. S. 553-554 (1979); Board of Governors v. First Lincolnwood Corp., 439 U. S. 234, 439 U. S. 248 (1978); NLRB v. Bell Aerospace Co., 416 U. S. 267, 416 U. S. 274-275 (1974).