Source: https://www.legalcrystal.com/case/102758/superintendent-ins-vs-bankers-life
Timestamp: 2017-11-23 15:03:50
Document Index: 549831380

Matched Legal Cases: ['§ 10', '§ 78', '§ 10', '§ 10', '§ 10', '§ 10', '§ 10', '§ 10']

Superintendent of Ins Vs Bankers Life and Cas Co - Citation 102758 - Court Judgment | LegalCrystal
Superintendent of Ins. Vs. Bankers Life and Cas. Co. - Court Judgment
LegalCrystal Citation legalcrystal.com/102758
Decided On Nov-08-1971
Case Number 404 U.S. 6
Appellant Superintendent of Ins.
Respondent Bankers Life and Cas. Co.
.....alleged that the company was defrauded, in violation of federal securities laws, by a fraudulent sale of securities owned by it. manhattan's sole stockholder agreed to sell all of its manhattan stock to one begole for $5 million. begole conspired with others to use united states treasury bonds owned by manhattan to pay for the shares. through a deceptive device, the bonds were sold and the proceeds used in the purchase of the stock. the depletion of manhattan's assets was concealed by the purported transfer to it, in exchange for the proceeds of the bond sale, of a certificate of deposit which, in fact, had been assigned by manhattan's new president, a coconspirator, to another corporation, and by it used as collateral for a loan. the district court dismissed the complaint and the.....
Superintendent of Ins. v. Bankers Life & Cas. Co. - 404 U.S. 6 (1971)
U.S. Supreme Court Superintendent of Ins. v. Bankers Life & Cas. Co., 404 U.S. 6 (1971)
Held: Section 10(b) of the Securities Exchange Act of 1934 makes it unlawful to use "in connection with the purchase or sale" of any security "any manipulative or deceptive device or contrivance" in contravention of the Securities and Exchange Commission's rules and regulations. Section 10(b) prohibits the use of any deceptive device in the "sale" of any security by "any person," and it is irrelevant that Manhattan was a corporation, rather than an individual investor; that the fraud was perpetrated by a corporate officer and his outside collaborators; that the transaction was not conducted through a securities exchange or an organized market; that the proceeds due the seller were misappropriated; and that the creditors of the defrauded corporate seller may be the ultimate victims. Pp. 404 U. S. 9 -14.
Manhattan then sold its United States Treasury bonds for $4,854,552.67. [ Footnote 1 ] That amount, plus enough cash to bring the total to $5,000,000, was credited to an account of Manhattan at Irving Trust, and the $5,000,000 Irving Trust check was charged against it. As a result, Begole owned all the stock of Manhattan, having used $5,000,000 of Manhattan's assets to purchase it.
To complete the fraudulent scheme, Irving Trust issued a second $5,000,000 check to Manhattan which Sweeny, Manhattan's new president, tendered to Belgian-American Bank & Trust Co., which issued a $5,000,000 certificate of deposit in the name of Manhattan. Sweeny endorsed the certificate of deposit over to New England Note Corp., a company alleged to be controlled by Bourne. Bourne endorsed the certificate over to Belgian-American Banking Corp. [ Footnote 2 ] as collateral for a $5,000,000 loan from Belgian-American Banking to New England. Its proceeds were paid to Irving Trust to cover the latter's second $5,000,000 check.
Manhattan was the seller of Treasury bonds and, it seems to us, clearly protected by § 10(b), 15 U.S.C. § 78j(b), of the Securities Exchange Act, [ Footnote 3 ] which makes it unlawful to use "in connection with the purchase or sale" of any security "any manipulative or deceptive device or contrivance" in contravention of the rules and regulations of the Securities and Exchange Commission. [ Footnote 4 ]
There certainly was an "act" or "practice" within the meaning of Rule 10b-5 [ Footnote 5 ] which operated as "a fraud or deceit" on Manhattan, the seller of the Government bonds. To be sure, the full market price was paid for those bonds, but the seller was duped into believing that it, the seller, would receive the proceeds. We cannot
Section 10(b) outlaws the use "in connection with the purchase or sale" of any security [ Footnote 6 ] of "any manipulative or deceptive device or contrivance." The Act protects corporations, as well as individuals, who are sellers of a security. Manhattan was injured as an investor through a deceptive device which deprived it of any compensation for the sale of its valuable block of securities.
The fact that the fraud was perpetrated by an officer of Manhattan and his outside collaborators is irrelevant to our problem. For § 10(b) bans the use of any deceptive device in the "sale" of any security by "any person." And the fact that the transaction is not conducted through a securities exchange or an organized over-the-counter market is irrelevant to the coverage of § 10(b). Hooper v. Mountain States Securities Corp., 282 F.2d 195, 201. Likewise irrelevant is the fact that the proceeds of the sale that were due the seller were misappropriated. [ Footnote 7 ] As the Court of Appeals for the Fifth
We agree that Congress, by § 10(b), did not seek to regulate transactions which constitute no more than internal corporate mismanagement. But we read § 10(b) to mean that Congress meant to bar deceptive devices and contrivances in the purchase or sale of securities whether conducted in the organized markets or face to face. And the fact that creditors [ Footnote 8 ] of the defrauded corporate buyer or seller of securities may be the ultimate victims does not warrant disregard of the corporate entity. The controlling stockholder owes the corporation a fiduciary obligation -- one "designed for the protection of the entire community of interests in the corporation -- creditors as well as stockholders." Pepper v. Litton, 308 U. S. 295 , 308 U. S. 307 .
"When a person who is dealing with a corporation in a securities transaction denies the corporation's directors access to material information known to him, the corporation is disabled from availing itself of an informed judgment on the part of its board regarding the merits of the transaction. In this situation, the private right of action recognized under Rule 10b-5 [ Footnote 9 ] is available as a remedy for the corporate disability."
The case must be remanded for trial. We intimate no opinion on the merits, as we have dealt only with allegations and with the question of law whether a cause of action as respects the sale by Manhattan of its Treasury bonds has been charged under § 10(b). [ Footnote 10 ] We think it
Section 3(a)(10) of the 1934 Act defines "security" very broadly ( see Tcherepnin v. Knight, 389 U. S. 332 ) and clearly embraces Treasury bonds.
It is now established that a private right of action is implied under § 10(b). See 6 L. Loss, Securities Regulation 3869-3873 (1969); 3 L. Loss, Securities Regulation 1763 et seq. (2d ed.1961). Cf. Tcherepnin v. Knight, 389 U. S. 332 ; J. I. Case Co. v. Borak, 377 U. S. 426 .