Opinion ID: 731037
Heading Depth: 3
Heading Rank: 2

Heading: Structural Analysis

Text: 21 The Central Bank Court explained that while the text of the statute resolved the case, a structural analysis would lead to the same result. 511 U.S. at ----, 114 S.Ct. at 1448. See United States Nat'l Bank of Oregon v. Independent Ins. Agents of America, Inc., 508 U.S. 439, 455, 113 S.Ct. 2173, 2182, 124 L.Ed.2d 402 (1993) (Statutory construction 'is a holistic endeavor,' United Savings Ass'n of Texas v. Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365, 371, 108 S.Ct. 626, 630, 98 L.Ed.2d 740 (1988), and, at a minimum, must account for a statute's full text, language as well as punctuation, structure, and subject matter.). 22 Here, a structural analysis indicates that securities trading by the defendant is not a prerequisite to liability under § 10(b). At least three securities laws impose liability only where the fraud is part of a securities transaction: § 12(2) of the Securities Act of 1933, 15 U.S.C. § 77l(a)(2) (imposing liability on any person who offers or sells a security by the use of fraud); § 17(a) of the 1933 Act, 15 U.S.C. § 77q(a) (making it unlawful for any person in the offer or sale of any securities to use fraud); and the amended version of § 15 of the 1934 Act, 15 U.S.C. § 78o(c)(1)(A) (No broker or dealer shall ... effect any transaction in, or ... induce or attempt to induce the purchase or sale of, any security by the use of fraud). In the words of Texas Gulf, these laws demonstrate that when Congress intended that there be a participation in a securities transaction as a prerequisite of a violation, it knew how to make that intention clear. 401 F.2d at 860. Thus, it would ignore the structure of the federal securities laws to read an implied trading requirement into the text of § 10(b). 23 E&Y makes three structure-based counterarguments. First, E&Y argues that the trading requirement of § 10(a) ought to be read into § 10(b). Section 10(a) prohibits unlawful short sales and stop-loss orders made in connection with securities trading. 7 Obviously, only a defendant who trades securities can be held liable under § 10(a). This, however, is the result of the specific short sale and stop-loss order requirements of § 10(a), and has nothing to do with the in connection with language. 24 Second, E&Y argues that § 10(b) is a catch-all for §§ 9 and 10(a), and that § 10(b) should therefore by limited by the trading requirement of §§ 9 and 10(a). 8 Both steps of this argument lack merit. The legislative history does indicate that § 10(b) is a catch-all clause. For example, Thomas G. Corcoran, a spokesperson for the Roosevelt Administration, described § 10(b) as a catch-all that was necessary to deal with new manipulative devices. Texas Gulf, 401 F.2d at 859 (quoting Stock Exchange Regulation, Hearings before the House Committee on Interstate and Foreign Commerce, 73rd Cong., 2d Sess. 115 (1934)). However, it is not clear that § 10(b) is a catch-all for §§ 9 and 10(a) only. Moreover, the fact that §§ 9 and 10(a) both have a trading requirement, 15 U.S.C. §§ 78i, 78j(a), does not necessarily mean that § 10(b) is also so limited. Indeed, the fact that Congress specifically limited §§ 9 and 10(a) to defendants who engaged in securities transactions, but did not so limit § 10(b), is further evidence that reading an implied trading requirement into § 10(b) would be improper. 25 Third, E&Y argues that Texas Gulf 's interpretation of § 10(b) improperly turns § 18 into surplusage. Section 18 makes any party filing false or misleading statements with the SEC liable to any party damaged by reliance on such statements. 9 It is true that under Texas Gulf, many who damage securities traders by filing false statements with the SEC are liable under both § 10(b) and § 18. However, even under Texas Gulf 's interpretation of § 10(b), each of these two sections fills a unique niche: on the one hand, § 18 requires proof of reliance while § 10(b) presumes it; on the other hand, § 10(b) requires proof of scienter while § 18 does not. See Wachovia Bank & Trust Co., N.A. v. National Student Marketing Corp., 650 F.2d 342, 357 (D.C.Cir.1980) (discussing the differences between § 10(b) and § 18), cert. denied sub nom. White & Case v. Wachovia Bank & Trust Co., N.A., 452 U.S. 954, 101 S.Ct. 3098, 69 L.Ed.2d 965 (1981); Ross v. A.H. Robins Co., 607 F.2d 545, 555-56 (2nd Cir.1979) (same), cert. denied, 446 U.S. 946, 100 S.Ct. 2175, 64 L.Ed.2d 802 (1980). A defendant has available to it an affirmative defense that it acted in good faith and had no knowledge that its statement was false or misleading. Musick, Peeler and Garrett v. Employers Ins. of Wausau, 508 U.S. 286, 296, 113 S.Ct. 2085, 2090, 124 L.Ed.2d 194 (1993), (noting § 18 involves defendants who violated securities law with scienter, citing to Ernst & Ernst v. Hochfelder, 425 U.S. 185, 209, n. 28, 96 S.Ct. 1375, 1388, n. 28, 47 L.Ed.2d 668 (1975)). Thus, there is no surplusage problem in extending liability under § 10(b) beyond those who actually trade securities to include those who know their fraudulent activities will affect the market.