Court Opinion

ID: 9448277
Source: CourtListenerOpinion
Date Created: 2023-08-03 23:29:48.289573+00
Date Added: 2024-06-11T17:31:21.603123
License: Public Domain

CLARK, Circuit Judge
(concurring in the result).
With considerable doubt and not a little reluctance I have at length felt constrained to concur in the remand to the Commission, although for somewhat different reasons from those expressed by my brothers. In fact their directions for re-examination of the case seem to me vague and unoriented. Generally speaking, I find remand for perfecting findings rather unprofitable and valueless as aid to ultimate decision; a classic case is our remand to the ICC which led to Judge Frank’s celebrated “woosh-woosh” dissent in Old Colony Bondholders v. New York, N. H. & H. R. Co., 2 Cir., 161 F.2d 413, 450, certiorari denied 331 U.S. 850, 67 S.Ct. 1754, 91 L.Ed. 1865. And the *115findings do not seem to me as vague as my brothers depict them; admittedly they show a “boiler room” blitz in stock sales promotion which was improper and a general participation in the sales effort by Kahn here and by Berko in the companion case. In substance their defense is lack of knowledge of what they were actually doing, or “I didn’t know the gun was loaded.” I do not care to support that defense or to throw obstacles in the way of the very necessary policing which the SEC should do and here is attempting of improper stock sales promotion. I believe they deserve the quite moderate punishment or reprimand they received. Finally I am concerned by the statement that our authority to affirm is here more limited than upon district court review; as shown by the author cited, 2 Davis, Administrative Law Treatise §§ 16.05, 16.12 (1958), this is an oversimplification of a complex problem with extensive ramifications.
My trouble is somewhat different; it is more to perceive what theory of law, or which of several possible ones, the Commission is applying. And I think it will be helpful not only to reviewing courts, but to the Commission itself, if it clarifies the position it here takes and doubtless will need to take in other similar cases. Basically the question is the extent to which it would press the conclusion of fraud which we supported in Charles Hughes & Co. v. S.E.C., 2 Cir., 139 F.2d 434, certiorari denied 321 U.S. 786, 64 S.Ct. 781, 88 L.Ed. 1077. The Commission is relying on the so-called “shingle’b theory to establish statutory fraud. The essence of this theory is that in certain circumstances one who sells securities to the public — who hangs out his shingle — q implicitly warrants the soundness of statements of stock value, estimates of a firm’s earnings potential, and the like. When such a person conceals known'information inconsistent with this “implicit warranty of soundness” he has^-' omitted a material fact without which the statements made would be misleading. See 3 Loss, Securities Regulation 1490 (2d Ed. 1961). One element of this warranty, the Commission held below, is that all such statements, or at least highly optimistic ones, have an “adequate basis.” If the salesman makes statements, knowing they had no adequate basis, or if he is “grossly careless or indifferent to the existence of an adequate basis” for his statements, then he has violated the anti-fraud provisions of the securities laws, principally § 17(a) (2) of the Securities Act of 1933, 15 U.S.C. § 77q(a) (2).
My difficulty here is not with this theory of the law, or necessarily with its application to these circumstances, but with the fact that, while the record presents a diversity of possible rules of law governing this situation, the Commission has not clearly indicated which we are to rely on for purposes of review. In oral argument counsel for the Commission pointed out that the fact that these were “boiler room” operations should be considered in review of this case, suggesting that the obligations imposed by the “shingle” theory apply here because of the special circumstances of this type of operation. Yet the opinion below does0 not connect Kahn explicitly with any of the “boiler room” activities; the Commission’s findings do not even state that Kahn’s customer had received one of MacRobbins’ brochures, even though the record suggests that he did. Thus I agree with the remand, not because otherwise we would establish a per se rule, but because we cannot tell what rule — per a se or otherwise — we are called upon to review. Congress has given the Commission a broad, though not limitless, grant of authority to interpret and apply the statutes under which it operates. Before we can assess the validity of the Commission’s interpretation of the statute, we should know precisely what that interpretation is. Compare S.E.C. v. Chenery Corp., 318 U.S. 80, 88, 63 S.Ct. 454, 87 L.Ed. 626.