Document: 404 U.S. 6 92 S.Ct. 165 30 L.Ed.2d 128 SUPERINTENDENT OF INSURANCE the STATE NEW YORK, as Liquidator of Manhattan Casualty Company, Petitioner,v.BANKERS LIFE AND CASUALTY COMPANY et al. No. 70—60. Argued Oct. 13, 1971. Decided Nov. 8, Arnold Bauman, New York City, for petitioner. Walter P. North, Washington, D.C., Securities and Exchange Comm., amicus curiae, by special leave Court. William Warren Karatz, respondent Irving Trust Co. Parker, Bankers Life Cas. Mr. Justice DOUGLAS delivered opinion 1 Co., now represented petitioner, York's Superintendent Insurance, was, it is alleged, defrauded in sale certain securities violation § 17(a) Act 1933, 48 Stat. 84, 15 U.S.C. 77q(a), 10(b) 1934, 891, 78j(b). The District Court dismissed complaint, 300 F.Supp. 1083, Appeals affirmed, a divided bench. 2 Cir., 430 F.2d 355. case here on petition writ certiorari which we granted, 401 973, 91 1191, 28 321. It seems that & one respondents, agreed to sell all Manhattan's stock Begole $5,000,000. alleged conspired with Bourne others pay this stock, not out their own funds, but assets. They were have arranged, through Garvin, Bantel Co.—a note brokerage firm—to obtain $5,000,000 check from although they had no funds deposit there at time. On same day purchased stockholders directors, installed Sweeny president Manhattan. 3 then sold its United States Treasury bonds $4,854,552.67.1 That amount, plus enough cash bring total $5,000,000, was credited an account charged against it. As result, owned Manhattan, having used assets purchase 4 To complete fraudulent scheme, issued second Sweeny, new president, tendered Belgian-American Bank certificate name endorsed over England Note Corp., company be controlled Bourne. Banking Corp.2 collateral loan England. Its proceeds paid cover latter's check. 5 Though been depleted, books reflected only Government did show his shares or assigned pledged Banking. seller and, us, clearly protected 10(b), 78j(b), Act,3 makes unlawful use 'in connection sale' any security 'any manipulative deceptive device contrivance' contravention rules regulations Commission.4 7 There certainly 'act' 'practice' within meaning Rule 10b—55 operated 'a fraud deceit' bonds. sure, full market price those bonds; duped into believing it, seller, would receive proceeds. We cannot agree 'no investor (was) injured' 'purity transaction purity trading process unsullied.' F.2d, 361. 8 Section outlaws security6 contrivance.' protects corporations well individuals who are sellers security. injured deprived compensation valuable block securities. 9 fact perpetrated officer outside collaborators irrelevant our problem. For bans 'sale' person.' And conducted exchange organized over-the-counter coverage 10(b). Hooper v. Mountain 282 195, 201. Likewise due misappropriated.7 Fifth Circuit said case, 'Considering purpose legislation, unrealistic say corporation capacity acquire $700,000 worth 700,000 has suffered loss if what gave up got zero.' 203. 10 Congress made clear 'disregard trust relationships whom law should regard fiduciaries, single seamless web' along manipulation, investor's ignorance, like. H.R.Rep.No. 1383, 73d Cong., 2d Sess., 6. Since practices 'constantly vary where legitimate some purposes may turned illegitimate means, broad discretionary powers' regulatory agency 'have found practically essential.' Id., 7. Hence do read narrowly Appeals; 'limited preserving integrity markets' (430 361), though included. must flexibly, technically restrictively. since with' redress under whatever might available remedy state law. 11 seek regulate transactions constitute more than internal corporate mismanagement. But mean meant bar devices contrivances whether markets face face. creditors8 buyer ultimate victims does warrant disregard entity. controlling stockholder owes fiduciary obligation—one 'designed protection entire community interests corporation—creditors stockholders.' Pepper Litton, 308 295, 307, 60 238, 245, 84 L.Ed. 281. 12 crux present injury result touching investor. stated Shell Hensley, 819, 827: 13 'When person dealing denies corporation's directors access material information known him, disabled availing itself informed judgment part board regarding merits transaction. In situation private right action recognized 10b—59 disability.' 14 before lower courts motion dismiss. urges complaint allege, discovery failed disclose, between that, therefore, dismissal correct affirmed. make ruling point. 16 remanded trial. intimate merits, dealt allegations question cause respects 10(b).10 think so accordingly reverse remand proceedings consistent opinion. 17 All defenses except (b) will open remand. 18 Reversed. Board Directors allegedly deceived authorizing misrepresentation exchanged equal value. time amount $250,000 distributed follows: American $100,000, $50,000, $25,000. provides: 'It shall . (t)o employ, registered national registered, contrivance such Commission prescribe necessary appropriate public interest investors.' 10b—5, CFR 240.10b—5, person, directly indirectly, means instrumentality interstate commerce, mails facility exchange, '(a) employ device, artifice defraud, '(b) untrue statement omit order statements made, light circumstances misleading, '(c) engage act, practice, course business operates operate deceit upon security.' N. 4, supra. 3(a)(10) 1934 defines 'security' very broadly (see Tcherepnin Knight, 389 332, 88 548, 19 564) embraces See, e.g., Allico Nat. Corp. Amalgamated Meat Cutters Butcher Workmen North America, 397 727 (CA7 1968), held sufficient 10b—5 defendant union, discovering third party higher price, breached prior agreement 100% wholly life insurance plaintiffs. court placed primary reliance transaction, union misappropriated 25,000 company's previously plaintiffs cash, being escrow pending consummation agreement. 'Even breach contract favorable (to confer jurisdiction 10(b)), here. motivation induce * also conversion plaintiffs' shares.' 729—730. See Cooper Jersey 226 972 (SDNY 1964), conspiracy plaintiff money buy securities, followed misappropriation when secure loan, violate 10b—5. Indeed, 'garden variety' type compared scheme rise A. T. Brod Perlow, 375 393 (CA2 1967). involved broker customers recovery losses refused ordered decreased value settlement date. refusal honor customers' plan appreciated date payment due. Rejecting pleas investment nor 'usually associated securities," id., 396, Second Circuit—composed different panel sitting instant case—-reversed Court's complaint. '(We not) sound dismiss merely because involve securities.' believe prohibit schemes artifices employed garden variety fraud, unique form deception. Novel atypical methods provide immunity laws.' 397. history shows especially concerned impact frauds creditors corporations. H.R.Rep.No.1383, 3—4. established implied L. Loss, Regulation 3869 3873 (1969); 1763 seq. (2d ed. 1961). Cf. 564; J. I. Case Borak, 377 426, 1555, 423. Petitioner's bases claim alternatively three 10(b): Begole; involving certificates deposit. hold cognizable bond express standing other phases Kellogg, Inability Obtain Analytical Precision Where Standing Sue Under Involved, 20 Buffalo L.Rev. 93 (1970); Lowenfels, Demise Birnbaum Doctrine: A Era 54 Va.L.Rev. 268 (1968).

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