Opinion ID: 4182911
Heading Depth: 2
Heading Rank: 2

Heading: the advisers act

Text: The Advisers Act sets “federal fiduciary standards for investment advisers.” Santa Fe Indus., Inc. v. Green, 430 U.S. 462, 471 n.11, 97 S. Ct. 1292, 1300 n.11 (1977). For our purposes here, we review the antifraud provisions of the Advisers Act—sections 206(1), (2), and (4). 3 In order to establish a violation, each of these sections requires the SEC to show the investment adviser made a material misrepresentation with a culpable mental state. See Steadman v. SEC, 603 F.2d 1126, 1129–34 (5th Cir. 1979) (Steadman I), aff’d, 450 U.S. 91, 101 S. Ct. 999 (1981) (interpreting sections 206(1)–(2)); 4 SEC v. Steadman, 967 F.2d 636, 643, 3 Section 206 says: It shall be unlawful for any investment adviser by use of the mails or any means or instrumentality of interstate commerce, directly or indirectly— (1) to employ any device, scheme, or artifice to defraud any client or prospective client; (2) to engage in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client; ... (4) to engage in any act, practice, or course of business which is fraudulent, deceptive, or manipulative. The Commission shall, for the purposes of this paragraph (4) by rules and regulations define, and prescribe means reasonably designed to prevent, such acts, practices, and courses of business as are fraudulent, deceptive, or manipulative. 15 U.S.C. §§ 80b-6(1), (2) & (4). 4 In Bonner v. City of Prichard, 661 F.2d 1206 (11th Cir. 1981) (en banc), we adopted as binding precedent all decisions of the former Fifth Circuit handed down before October 1, 1981. Id. at 1209. 8 Case: 16-15322 Date Filed: 06/30/2017 Page: 9 of 32 647 (D.C. Cir. 1992) (Steadman II) (interpreting section 206(4)). While the material-misrepresentation element is the same for all three sections, the mentalstate element for section 206(1) is different than that for sections 206(2) and (4). See Steadman I, 603 F.2d at 1134; Steadman II, 967 F.2d at 647. Section 206(1) requires the SEC to show the adviser acted with scienter. Steadman I, 603 F.2d at 1134. Sections 206(2) and (4) require no showing of scienter, and a showing of negligence is sufficient. See id.; Steadman II, 967 F.2d at 643 & n.5, 647.