Document: 441 U.S. 768 99 S.Ct. 2077 60 L.Ed.2d 624 UNITED STATES, Petitioner,v.Neil T. NAFTALIN. No. 78-561. Argued March 26, 1979. Decided May 21, Syllabus Respondent engaged in a fraudulent "short selling" scheme, by placing orders with brokers to sell certain shares of stock which he believed had peaked price and falsely represented that owned. Gambling the would decline substantially before was required deliver securities, planned make offsetting purchases through other at lower prices. But market rose sharply delivery date so respondent unable covering never delivered securities. Consequently, were securities investor-purchasers forced borrow delivery. In order return borrowed stock, purchase replacement on open now higher prices, process known as "buying in." While investors thereby shielded from direct injury, suffered substantial financial losses. The District Court found guilty employing "a scheme artifice defraud" sale violation § 17(a)(1) Securities Act 1933, makes it unlawful "for any person offer or . directly indirectly employ device, defraud." Appeals, while finding evidence sufficient establish committed fraud, vacated conviction ground purpose protect practices since respondent's fraud injured only not investors, did violate 17(a)(1). Held: Section prohibits frauds against well investors. Pp. 771-779. (a) Nothing face indicates applies solely directed Rather, its language requires occur "in" an "offer sale" Here, clearly occurred within meaning terms defined 2(3) Act. And "offer" "sale," statute does require particular phase selling transaction. 772-773. (b) fact 17(a)(3) for engage transaction, practice, course business operates deceit "upon purchaser," mean this latter phrase should be read into 17(a)(1), each subsection 17(a) proscribes distinct category misconduct. 773-774. (c) Neither nor Congress has ever suggested investor protection sole prevention key part Act, effort "to achieve high standard ethics every facet industry," SEC v. Capital Gains Bureau, 375 180, 186-187, 84 275, 279-280, 11 237, conclusion is amply supported legislative history. 774-776. (d) Moreover, may redound detriment Although case no immediate indirect impact upon such situation can substantial. injury also possible. Had been insolvent borrow, might have failed receive their promised shares. Placing outside aegis create loophole intend. 776-777. (e) primarily concerned regulation new offerings antifraud prohibition meant major departure limitation, intended cover whether initial distribution ordinary trading. Accordingly, involve offering render inapplicable fraud. 777-778. (f) Since words "plainly impose" penalty acts case, inappropriate apply rule ambiguity scope criminal resolved favor lenity. 778-779. 8 Cir., 579 F.2d 444, reversed. Stephen M. Shapiro, Washington, D. C., petitioner. Joe A. Walters, Minneapolis, Minn., respondent. Mr. Justice BRENNAN opinion Court. 1 question presented 48 Stat. 84, amended, 68 686, 15 U.S.C. 77q(a)(1), We hold does. 2 Respondent, Neil Naftalin, president registered broker-dealer firm professional investor. Between July August 1969, Naftalin scheme. He selected stocks that, his judgment, entering period decline. then placed five these stocks, although own purported sell. them, take profit difference between sold covered. aware, however, who executed they either accepted orders, margin deposit. therefore owned them sell.1 3 Unfortunately respondent, prices "sold" fall prior date, but instead sharply. purchases, keep promises. Then, in."2 whom 4 United States Minnesota eight counts 17(a)(1).3 App. 24-25; Pet. Cert. 15a-20a. Appeals Eighth Circuit 447 (1978), nonetheless convictions. Finding "was securities," ibid., court held "the government must prove some investor," id., 448. concluded granted certiorari, 439 1045, 719, 59 703 reverse. 5 * (1) violated, states: "It shall use means instruments transportation communication interstate commerce mails, indirectly— 6 "(1) defraud, 7 "(2) obtain money property untrue statement material omission state necessary statements made, light circumstances under misleading, "(3) operate purchaser." 9 Court, dispute representing sold, defrauded sales. Brief 7-8, 11; Tr. Oral Arg. 17-18. contends, correctly those brokers. 10 supports reading it. Subsection "any defraud ." (Emphasis added.) statutory victim investor—only sale. An here. brokers; brokers, acting agents, orders; results contracts sale, are definition, 77b(3). "sale."4 terms, expressly define broadly, see H.R.Rep.No.85, 73d Cong., 1st Sess., (1933); Loss 512 n. 163; cf. National Securities, Inc., 393 453, 467 8, 89 564, 572 21 668 (1969), expansive enough encompass entire process, including seller/agent 74, 683, 77b(3), 12 "The term 'sale' include contract disposition security interest security, value. 'offer' attempt dispose value." 13 This At very least, broker certainly "attempt dispose" them. 14 Thus, nothing creates requirement purchaser. urges phrase, (3) 17(a), all three subsections. short answer write way. Indeed, provides strong affirmative purchaser relevant prosecutions brought 17(a)(3), As indicated infinitive introduce subsections, conjunction "or" end first two misconduct.5 Each succeeding additional kinds illegalities—not narrow reach sections. See Birrell, 266 F.Supp. 539, 542-543 (SDNY 1967). There is, therefore, "no warrant narrowing alternative provisions legislature adopted affording added safeguards." Gilliland, 312 86, 93, 61 518, 522, 85 L.Ed. 598 (1941).6 II below primary reliance restrictive interpretation what perceived Congress' passing Noting both emphasized importance protecting Ernst & Hochfelder, 425 185, 195, 96 1375, 1382, 47 (1976), "against backdrop we constrained investor." F.2d, 16 neither noted heretofore, "emerged aftermath crash 1929." supra, U.S., 194, S.Ct., 1381-1382. generally 120-121. contemplation markets help set economy road recovery. 77 Cong.Rec. 2925 (1933) (remarks Rep. Kelly); 2935 Chapman); 3232 Sen. Norbeck); (1933). Prevention surely program, industry." 280, 237 (1963) (emphasis added). 1382; Brown, 555 336, 338-339 (CA2 1977). 17 reference record. breadth most demonstrated Senate Report: 18 bill investing public honest business. aim prevent further exploitation unsound, fraudulent, worthless misrepresentation; place adequate true information investor; enterprise, seeking capital presentation, competition afforded dishonest offered crooked promotion; restore confidence prospective ability select sound securities; bring productive channels industry development grown timid point hoarding; aid providing employment restoring buying consuming power." S.Rep.No.47, 19 constant preoccupation legislators, record replete references desire ethical businessmen. 2983 Fletcher); Representative Chapman stated, "[t]his legislation designed same time corporate business." Respondent's assertion concern limited thus manifestly inconsistent 20 welfare intermediaries inextricably linked—frauds perpetrated whole. Exchange Commission, Report Special Study Markets, H.R.Doc.No.95, 88th pt. 1, pp. 9-11 (1963). Fraudulent sales exception.7 because covered borrowing in," "Buying in" actuality form insurance and, like forms insurance, costs. Losses increase cost doing business, long run pay least brokerage fees. addition, unchecked short-sale level uncertainty could work Finally, here always case. Entitled one agreement, buy substitute price.8 simply intend create. III Government's petition asserts final, independent argument support judgment below. That 1933 "preoccupied with" waited until 1934 regulate abuses trading "aftermarket." Naftalin's offering, contends inapplicable, prosecuted violations specific short-selling regulations promulgated Act,9 general proscriptions Act's 10(b), 78j(b), SEC's Rule 10b-5, CFR 240.10b-5 (1978). 17-18; 16-17, 22-24. 22 offerings, fails limitation. Unlike much rest act, 130; Douglas Bates, Federal 43 Yale L.J. 171, 182 V. Brudney Chirelstein, Corporate Finance 740 (1972). made abundantly clear language, distinctions transactions, Report, stated: 23 act subjects old outstanding penalties injunctive authority deception, misrepresentation issues put out after approval act. words, deception regardless new, class exempted sections 12." 24 Accord, undoubtedly correct Acts prohibit conduct. 1428. "[t]he there overlap unusual unfortunate." 468, 573. Edwards States, 473, 484, 669, 675, 957 (1941). It absolve guilt transactions violated convicted. IV 25 " 'ambiguity concerning ambit statutes lenity,' Culbert, 435 371, 379, 98 1112, 1116, 55 349 quoting Rewis 401 808, 812, 91 1056, 1059, 28 493 (1971), defendant 'be subjected unless plainly impose it,' Campos-Serrano, 404 293, 297, 92 471, 474, 30 457 Keppel Tiffin Savings Bank, 197 356, 362, 443, 445, 49 790 (1905). do it." "Congress conveyed clearly, manufacture where none exists," 1117. decision 26 Reversed. 27 POWELL took consideration A mark customer's "long" if "is informed seller owns ordered soon possible without undue inconvenience expense, will .." 240.10a-1(d) If executes marked when due, "buy 240.10a-2(a) L. Loss, Regulation 1233-1235 (2d ed. 1961) (hereinafter Loss). Willful subject sanctions 77x. connotes narrower range activities than "in connection with," 10(b) 1934, 78j(b). First, necessarily persuaded with." Both Congress, (1933), Superintendent Insurance Bankers Life Cas. Co., 6, 10, 165, 167, 128 occasion used interchangeably. even connote group indicate sense insisted Naftalin. matters "punctuation [are] decisive construction statute," Costanzo Tillinghast, 287 341, 344, 53 152, 153, 350 (1932), reaffirm conclusions drawn themselves provide useful confirmation. Here separate numbers subsection, purchaser" off (3), confirm our "[n]othing suggests congressional intent limit coverage," 373, 1113, purchasers. involves prosecution. Blue Chip Stamps Manor Drug Stores, 421 723, 95 1917, 44 539 (1975), purchasers sellers plaintiffs private implied causes action Commission inapplicable. 9, (1969). bears repeating convicted selling, selling. potential reduced regulations, 240.10a-2 Investor Protection 1970, 78aaa et seq., described still remains. legal requirements exist passed, hence kind practiced caused injury. subsequent enactments serve restrict original 17(a). §§ 78g, 78j(a); 220.3, 220.4(c)(ii), 220.8(d), 224.2 (1978); 240.10a-1

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