Opinion ID: 2176586
Heading Depth: 1
Heading Rank: 5

Heading: the number of statutory violations

Text: The Commissioner argues that the Court of Chancery erred by reducing the number of supervisory violations to only two when there had been many fraudulent transactions by Hibbard Brown's agents due to the lack of proper supervision. We emphasize that the nature of the violations is substantially more important than the number of violations for purposes of determining an appropriate sanction. Nevertheless, we will address the issue in order to aid litigants in future proceedings. The Commissioner's method of determining the number of violations for failure to supervise is to count each sale of a security as a separate violation. The Court of Chancery's approach is to count the failure to supervise each agent as a separate violation without regard to the number of sales each agent makes. In our opinion, the Vice Chancellor's method is correct. The statute imposes liability for a failure to supervise agents, not for sales by unsupervised agents. See 6 Del.C. § 7316(a)(10). While the number of sales made by the unsupervised agent may well affect the remedy imposed (particularly the amount of restitutionary damages), it should not determine the number of violations. Under the Commissioner's approach, a company which fails to supervise ten agents, each of whom makes one sale, would be found to have committed the same number of violations as a company which failed to supervise only one agent making ten sales. In our view, the lack of supervision in the former instance is the more culpable because it demonstrates a more widespread failure of oversight. [11] We therefore conclude that the Court of Chancery did not err in finding that Hibbard Brown committed two violations, and not seventeen, of section 7316(a)(10).