Court Opinion

ID: 9465116
Source: CourtListenerOpinion
Date Created: 2023-08-05 00:36:18.010865+00
Date Added: 2024-06-11T17:38:59.018222
License: Public Domain

VAN GRAAFEILAND, Judge,
concurring:
Although I concur in Judge Coffrin’s well-reasoned opinion, I must express my concern over the attempts being made, as in this case, to fit the square peg of the “suitability” rules into the round hole of section 10(b), 15 U.S.C. § 78j, and rule 10b-5, 17 C.F.R. § 240.10b-5.
Article III, section 2 of the NASD Rules of Fair Practice and Commission rule 15bl0-3,17 C.F.R. § 240.15M0-3, governing non-NASD members, provide that a broker or dealer shall have “reasonable grounds” to believe that the security he recommends is suitable or not unsuitable for his customer. A belief based upon reasonable grounds is a belief which a reasonable or prudent person or a person of reasonable caution would have. See 36 Words and Phrases 50-54 (Supp.1978). Because wilful or intentional misconduct, or recklessness equivalent thereto, is required for a 10(b) violation, any attempt to make a 10(b) transgression out of a “suitability” rule violation is almost certain to lead to the confusion evident in the district court’s charge. Cf. Utah State University of Agriculture and Applied Science v. Bear, Stearns & Co., 549 F.2d 164, 169 (10th Cir. 1977).
I concur in the holding herein only because the district court charged the requirement of scienter and appellant took no exception to the court’s instructions concerning the NASD suitability rule.