Court Opinion

ID: 8411483
Source: CourtListenerOpinion
Date Created: 2022-11-02 18:59:02.788142+00
Date Added: 2024-06-11T16:47:51.845424
License: Public Domain

BOUDIN, Circuit Judge,
with whom LYNCH, Chief Judge, joins,
concurring.
A “plain language” approach to statutory construction has well-known adherents, and — in construing the SEC’s rule at issue (“make any untrue statement of a material fact”) — bare wording forcefully supports Judge Selya’s thorough and persuasive decision. Yet even a more elastic “all things considered” reading of the rule’s language would not justify the alarmingly ambitious use of it that the agency seeks to deploy in this case.
The word “make,” in reference to a statement, ordinarily refers to one authoring the statement or repeating it as his *451own; one who lends to a friend a book is not normally deemed to “make” the statements in the book. See Regents of the Univ. of Cal. v. Credit Suisse First Boston (USA), Inc., 482 F.3d 372, 384 n. 20 (5th Cir.2007). There is some breathing room: for example, imagine an underwriter orally or in writing specifically affirming to an investor the truth of specific statements in a prospectus that he knew to be false.
Here, the SEC propounds a far more expansive view: it asks the courts to treat securities professionals as a matter of course as impliedly representing the entire contents of prospectuses whenever they sell securities or assist those who do. The argument against so sweeping a position begins with language, but it does not end there: congressional policy, Supreme Court precedent, practical consequences and the nearly uniform view of circuit courts that have spoken all argue against the SEC’s proposed interpretation. It helps focus the issue, and underscores the reach of the SEC’s position, to recite briefly the SEC’s allegations — both those rejected and not appealed, and those on appeal — as to Tambone and Hussey’s relationship to and use of the Columbia Funds prospectuses.
Tambone and Hussey were officers of Columbia Funds Distributor, Inc. (“Columbia Distributor”), which served as principal underwriter for Columbia mutual funds. As underwriters, they were required by law to furnish prospectuses to broker-dealers selling Columbia funds and to investors to whom they sold directly. See 15 U.S.C. § 77e(b) (2006); 17 C.F.R. § 240.15c2-8(b) (2009). The prospectuses, however, were drafted by a separate entity, Columbia Management Advisors, Inc. (“Columbia Advisors”), and the SEC admits in its complaint that Columbia Advisors rather than Columbia Distributor (and hence the defendants) “remained primarily responsible for all representations made in the prospectuses for those funds.”
The SEC’s more specific allegations concern the creation of the prospectuses and, separately, their use. The SEC complaint charged that the defendants were “involved in the process of revising the prospectuses,” “reviewed the market timing representations before they were included in the prospectuses” and “eomment[ed] on these representations to in-house counsel for Columbia Advisors.” The district court found that these allegations failed to plead fraud with requisite particularity, SEC v. Tambone, 473 F.Supp.2d 162, 165-66 (D.Mass.2006); the SEC does not now challenge this determination.
As to the use of the prospectuses, the SEC initially argued that Tambone and Columbia Distributor “signed hundreds of [selling] agreements” with broker-dealers that expressly represented and warranted that “each Prospectus and all sales literature ... [would] not by statement or omission be misleading.” The district court again found that these allegations “flatly fail[ed]” to meet the particularity requirements. Tambone, 473 F.Supp.2d at 167. The SEC does not argue otherwise, nor does it point to any other specific oral or written statements made by the two defendants.13
The SEC’s remaining allegations regarding the defendants’ use of the prospectuses, which are before us, are simply that the defendants, as required, dissemi*452nated prospectuses to broker-dealers and investors in their capacity as underwriters. The SEC does not say that the defendants explicitly represented as true to investors the prospectuses’ market timing provisions or that they even discussed the prospectuses with investors. The SEC instead claims that in selling securities, a defendant who neither personally authorized nor repeated an inaccurate statement nevertheless “make[s]” an implied statement or representation under Rule 10b-5(b) that the prospectuses prepared by the issuer are in all respects accurate and not materially misleading.
Following Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 114 S.Ct. 1439, 128 L.Ed.2d 119 (1994), Congress gave the SEC alone statutory authority to bring actions against individuals who aided and abetted a section 10(b) violation, 15 U.S.C. § 78t(e); and this authority might be used to charge one who distributed a false prospectus knowing that it contained false statements. The SEC’s position in this case would undo this deliberate legislative compromise, see S.Rep. No. 104-98, at 19 (1995), and it would conflict with practically all of the pertinent circuit cases.14
While the defendants in this case held significant positions, there is no obvious stopping point: virtually anyone involved in the underwriting process might under the SEC’s “making a statement” theory be charged and subject to liability in a suit under section 10(b). The SEC may select its defendants sensibly; but private litigants have their own incentives, and the SEC concedes that its definition of “make,” if adopted, would apply to private party actions as well. The Supreme Court has repeatedly acknowledged the unique risk of “vexatious” securities litigation,15 and it has likewise cautioned against extending further the court-created private remedy under section 10(b). See Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 165, 128 S.Ct. 761, 169 L.Ed.2d 627 (2008); accord Ernst & Ernst v. Hochfelder, 425 U.S. 185, 199—201, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976).
Nothing justifies the adventure proposed by the agency. The conduct charged is already covered by an aiding and abetting remedy available to the SEC itself. 15 U.S.C. § 78t(e). Sections 11 and 12 of the 1933 Act, 15 U.S.C. §§ 77k, 771, allow private suits — but with important limitations — against underwriters who fail to make reasonable investigations into the prospectuses they distribute. And private litigants are free to sue the actual authors of misstatements in the prospectus under section 10(b) itself. See note 13, above.
More than enough is too much. No one sophisticated about markets believes that multiplying liability is free of cost. And *453the cost, initially borne by those who raise capital or provide audit or other services to companies, gets passed along to the public. Cent. Bank, 511 U.S. at 189, 114 S.Ct. 1439; Winter, Paying Lawyers, Emoivering Prosecutors, and Protecting Managers: Raising the Cost of Capital in America, 42 Duke L.J. 945, 962 (1993). Congress and the Supreme Court have struck a balance; the SEC is obliged to respect it.

. Oral or written statements made by underwriters while placing securities can be predicates for securities violations. See, e.g., Dolphin & Bradbury, Inc. v. SEC, 512 F.3d 634, 638-40 (D.C.Cir.2008); Sanders v. John Nuveen & Co., 554 F.2d 790 (7th Cir.1977); Picard Chem. Inc. Profit Sharing Plan v. Perrigo Co., 940 F.Supp. 1101, 1120-21 (W.D.Mich.1996).

. Post Central Bank, this implied representation theory has been regularly rejected by the circuits, see Lattanzio v. Deloitte & Touche LLP, 476 F.3d 147, 155 (2d Cir.2007) (rejecting an “implied assertion” theory because "[plublic understanding that an accountant is at work ... does not create an exception to the requirement that an actionable misstatement be made by the accountant”); Fidel v. Farley, 392 F.3d 220, 235 (6th Cir.2004); Ziemba v. Cascade Int'l, Inc., 256 F.3d 1194, 1205-06 (11th Cir.2001); Anixter v. Home-Stake Prod. Co., 77 F.3d 1215, 1226-27 (10th Cir.1996), with the exception of the Ninth Circuit, see Howard v. Everex Sys., Inc., 228 F.3d 1057, 1061 n. 5 (9th Cir.2000).

. See, e.g., Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71, 86, 126 S.Ct. 1503, 164 L.Ed.2d 179 (2006); Cent. Bank, 511 U.S. at 189, 114 S.Ct. 1439; Va. Bankshares, Inc. v. Sandberg, 501 U.S. 1083, 1105, 111 S.Ct. 2749, 115 L.Ed.2d 929 (1991); Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 739, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975).