Document: 535 U.S. 813 SECURITIES AND EXCHANGE COMMISSIONv.ZANDFORD. No. 01-147. Supreme Court of the United States. Argued March 18, 2002. Decided June 3, CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR FOURTH CIRCUIT Respondent broker persuaded William Wood, an elderly man, to open a joint investment account for himself and his mentally retarded daughter. The Woods gave respondent discretion manage general power attorney engage in securities transactions without their prior approval. When Mr. Wood died few years later, all money he had entrusted was gone. subsequently indicted on federal wire fraud charges for, inter alia, selling Woods' making personal use proceeds. Securities Exchange Commission (SEC) then filed civil complaint same District Court, alleging that violated § 10 Act 1934 (Act) SEC's Rule 10b-5 by engaging scheme defraud misappropriating knowledge or consent. After respondent's conviction criminal case, granted SEC summary judgment case. Fourth Circuit reversed directed dismiss complaint, holding neither nor allegations established "in connection with purchase sale any security." Because steal assets, not manipulate particular security, it no relationship market integrity investor understanding, court held there 10(b) violation. Held: Assuming complaint's are true, conduct Among Congress' objectives passing ensure honest markets thereby promote confidence after 1929 crash. Congress sought "`to substitute philosophy full disclosure caveat emptor thus achieve high standard business ethics industry.'" Affiliated Ute Citizens Utah v. States, 406 U. S. 128, 151. To effectuate its remedial purposes, should be construed flexibly, technically restrictively. has consistently adopted broad reading security," maintaining who accepts payment never intends deliver, sells intent misappropriate proceeds, violates 10(b)-5. This interpretation statute's ambiguous text context formal adjudication is entitled deference. See States Mead Corp., 533 218, 229-230. Neither this ever must misrepresentation about security's value order run afoul Act. disagrees claim misappropriation though fraudulent, does have requisite sales, which were perfectly lawful. sales practices independent events. Taking as each made further fraudulent scheme; deceptive because authorized by, disclosed to, Woods. In aggregate, properly viewed course operated deceit stockbroker's customer. As Superintendent Ins. N. Y. Bankers Life & Casualty Co., 404 6; Wharf (Holdings) Ltd. Int'l Holdings, Inc., 532 588; O'Hagan, 521 642, cases found violation, here describes breaches fiduciary duty coincide. Those therefore with" within 10(b)'s meaning. Pp. 819-825. 238 F. 3d 559, remanded. STEVENS, J., delivered opinion unanimous Court. Matthew D. Roberts argued cause petitioner. With him briefs Acting Solicitor General Clement, Deputy Kneedler, David M. Becker, Jacob H. Stillman, Richard Humes, Katharine B. Gresham, Susan McDonald. Steven Goldblatt respondent. brief Roy T. Englert, Jr.* JUSTICE STEVENS 1 stockbroker both 1934, 48 Stat. 891, amended, 15 C. 78j(b), 10b-5, customer's using proceeds own benefit question presented whether alleged security" meaning statute Rule. 2 * Between 1987 1991, employed Maryland branch New York brokerage firm. 1987, man poor health, According "stated `safety principal income.'" App. Pet. Cert. 27a. Relying promise "conservatively invest" money, $419,255. Before Wood's death 3 National Association Dealers (NASD) conducted routine examination firm discovered over 25 separate occasions, been transferred from accounts controlled due course, 13 counts violation 18 1343. 40a. first count sold Id., at 42a. Each other transfers between enabled withdraw specified sums accounts. 42a-50a. Some those involved writing checks mutual fund Woods, required liquidating redeem checks. convicted counts, sentenced prison 52 months, ordered pay $10,800 restitution. 4 indicted, approximately $343,000 moved partial conviction, arguing case estopped contesting facts 10(b).1 motion seeking discovery "connection security. refused allow entered against It enjoined future violations laws disgorge ill-gotten gains. 5 Appeals remanded directions complaint. 559 (2001). only two findings — (1) engaged (2) used interstate communications executing did establish elements Specifically, necessarily 562.2 sufficiently allege necessary merely incidental "lay absconding proceeds" "a customary fashion," id., 564. Respondent's "scheme simply assets" rather than manipulation 565. Ultimately, "to stretch language provisions encompass every conversion theft happens involve securities." 566. Adopting what amounts "fraud market" theory coverage, some "relationship understanding," 10(b). 563. 6 We petition writ certiorari, 534 1015 (2001), review Appeals' construction phrase dismissed remanding reconsideration, we assume contained therein true affirm disposition if set would entitle petitioner relief. Hartford Fire Co. California, 509 764, 811 (1993). do reach record supports Court's grant favor requires potential factual disputes resolved favor.3 hold relief; therefore, dismissed. II 7 Section makes "unlawful person ... [t]o employ, security ..., manipulative device contrivance contravention such rules regulations [SEC] may prescribe." 78j. implements provision, forbids use, "any device, scheme, artifice defraud" "act, practice, business" "operates deceit." 17 CFR 240.10b-5 (2000). insure confidence" crash 1929. 658 (1997); see also Naftalin, 441 768, 775 (1979). More generally, 151 (1972) (quoting Capital Gains Research Bureau, 375 180, 186 (1963)). 8 Consequently, explained "construed `not restrictively, but flexibly purposes.'" S., 195). role enforcing Act, maintained customer 10b-5. See, e. g., re Bauer, 26 E. 770 (1947); Southeastern 29 609 (1949). 10(b), adjudication, deference reasonable, 229-230, n. 12 For reasons forth below, think is. While so broadly convert common-law into Marine Bank Weaver, 455 551, 556 (1982) ("Congress, enacting laws, intend provide remedy fraud"), 9 claims benefit. submits themselves lawful subsequent having sales; view, materially different simple cash account. disagree. "engaged beginning 1988, shortly they opened account, continued throughout 2-year period during series use. 27a-29a. which, transaction consummated, decided so. Nor thief invested stock market. Rather, coincided themselves. 11 regard shares fund, initiated these check knowing redeeming require securities. Indeed, time "exercised benefit," conduct, "without more," fraud. Dunn, 268 121, 131 (1925). "course Insofar concerned, remarkably similar (1971). directors Manhattan Company company's portfolio treasury bonds "duped" believing company receive sale. 9. "Manhattan injured through deprived compensation valuable block 10. reaching conclusion, ask, misled "manipulation 3d, fact, rejected Second Circuit's position 430 2d 355, 361 (1970), take place exchange prohibited read narrowly, noting "must restrictively." 12. Although recognized interest "`preserving markets'" one purposes animating statute, notion limited serving objective alone. Ibid. ("We agree seek regulate constitute more internal corporate mismanagement. But mean meant bar devices contrivances organized face face"). Like Life, investors deceptions, them They duped assets behalf "`safety fact misappropriated provides persuasive evidence when essential element offense. flatly stated "irrelevant" "the seller misappropriated." enough 14 below distinguished ground affirmative misrepresentation, whereas failed inform distinction. able carry out trusted make best Under circumstances, represents even greater threat industry Life. Not prevent trusting brokers benefit, undermines discretionary like enables individuals, lack time, capacity, know-how supervise decisions, delegate authority will decisions interests If individuals cannot rely exercise loses added value. Moreover, distinction omissions misrepresentations illusory her clients. Chiarella 445 222, 230 (1980) (noting "silence operate actionable under 10(b)" disclose arising trust parties transaction"); 153. recently, 588 our decision focused secret occurred. purchaser claimed "that (the option) while secretly intending very honor option." 597. specifically argue breach contract underlying lacked securities, assert dispute ownership option, interpreting include happened laws. 596. argument purchaser's defendant sell securities; rather, agreement place. 596-597. Similarly, keep Wharf, deception identical. 16 642 (1997), committed confidential information trading purposes. reasoned fiduciary's gains information, when, principal, uses entity defrauded party trade, is, instead, source nonpublic information." 656. O'Hagan client outside market, limited. chief passage cited proposition, discussed Government's "[t]he apply bank giving loan embezzled another, misdeed securities," situation malefactor apart transaction, complete soon obtained." 656 (internal quotation marks omitted). Even could introduce new requirement affect analysis before 10(b).4 Accordingly, reversed, proceedings consistent opinion. ordered. Notes: Briefs ofamici curiae urging reversal AARP et al. Deborah Zuckerman, Stacy J. Canan, Michael R. Schuster, Kevin Roddy; NASD Regulation, Joseph Warin, Douglas Cox, Andrew Tulumello, Elisse Walter. scope coextensive coverage seeUnited 651 Ernst Hochfelder, 425 185, 214 (1976); refer statutory provision excessive trading, "churning," generate commission income. 30a. That originally excluded motion, later abandoned SEC. A affirming conclusion verdict determine connected security: "The Government ample direct circumstantial showing Zandford showed that: systematically large nineteen month period; November Zandford; (3) Zandford, benefited transfers; (4) vulnerable victims physical mental limitations; (5) services agreement, loan, vintage car restoration contrary objectives, Zandford's employer arrangements; (6) vehicles owned part titled name girlfriend opposed names. Additional included failure existence agreements loans; report taxes applications received income acting representative; involvement business. contention insufficient supporting meritless." 36a-37a. denying influenced frequent filings incarcerated. noted "has active litigant incarceration."Id., 16a, (citing NASD, 30 Supp. (DC 1998); 19 Prudential-Bache Securities, 112 723 (CA4 1997); 111 963 1998) (judgt. order); Civ. Action 94-0036, 1995 WL 507169 (D. C., Aug. 15, 1995); HAR-90-2568, 1994 150918 Md., Feb. 22, 1994); 93-1274, 1993 580761 Nov. 5, 1993)). Contrary prediction, 566 2001), transform If, example, embezzles client's takes advantage induce real estate Tr. Oral Arg. 16. Likewise, told stealing might CfSanta Fe Industries, Inc. Green, 462, 474-476 (1977).

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