Court Opinion

ID: 2672210
Source: CourtListenerOpinion
Date Created: 2014-05-02 00:26:08.770243+00
Date Added: 2024-06-11T11:57:52.145079
License: Public Domain

(Slip Opinion)              OCTOBER TERM, 2013                                       1

                                       Syllabus

         NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
       being done in connection with this case, at the time the opinion is issued.
       The syllabus constitutes no part of the opinion of the Court but has been
       prepared by the Reporter of Decisions for the convenience of the reader.
       See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.

SUPREME COURT OF THE UNITED STATES

                                       Syllabus

      CHADBOURNE & PARKE LLP v. TROICE ET AL.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
                  THE FIFTH CIRCUIT

   No. 12–79. Argued October 7, 2013—Decided February 26, 2014*
The Securities Litigation Uniform Standards Act of 1998 (Litigation
  Act or Act) forbids the bringing of large securities class actions “based
  upon the statutory or common law of any State” in which the plain-
  tiffs allege “a misrepresentation or omission of a material fact in con-
  nection with the purchase or sale of a covered security,” 15 U. S. C.
  §78bb(f)(1). The Act defines “covered security” to include, as relevant
  here, only securities traded on a national exchange. §§78bb(f)(5)(E),
  77r(b)(1).
     Four sets of plaintiffs, respondents here, filed civil class actions
  under state law, contending that the defendants, petitioners here,
  helped Allen Stanford and his companies perpetrate a Ponzi scheme
  by falsely representing that uncovered securities (certificates of de-
  posit in Stanford International Bank) that plaintiffs were purchasing
  were backed by covered securities. The District Court dismissed each
  case under the Litigation Act. Although the certificates of deposit
  were not covered securities, the court concluded, the Bank’s misrep-
  resentation that its holdings in covered securities made investments
  in its uncovered securities more secure provided the requisite “con-
  nection” (under the Litigation Act) between the plaintiffs’ state-law
  actions and transactions in covered securities. The Fifth Circuit re-
  versed, concluding that the falsehoods about the Bank’s holdings in
  covered securities were too tangentially related to the fraud to trigger
  the Litigation Act.
Held: The Litigation Act does not preclude the plaintiffs’ state-law class
——————
   * Together with No. 12–86, Willis of Colorado Inc. et al. v. Troice
et al., and No. 12–88, Proskauer Rose LLP v. Troice et al., also on certio-
rari to the same court.
2               CHADBOURNE & PARKE LLP v. TROICE

                                  Syllabus

    actions. Pp. 8–19.
       (a) Several factors support the conclusion that the scope of
    §78bb(f)(1)(A)’s phrase “misrepresentation or omission of a material
    fact in connection with the purchase or sale of a covered security”
    does not extend further than misrepresentations that are material to
    the decision by one or more individuals (other than the fraudster) to
    purchase or sell a covered security. First, this interpretation is con-
    sistent with the Act’s basic focus on transactions in covered, not un-
    covered, securities. Second, the interpretation is supported by the
    Act’s language. The phrase “material fact in connection with the
    purchase or sale” suggests a connection that matters. And a connec-
    tion matters where the misrepresentation makes a significant differ-
    ence to someone’s decision to purchase or to sell a covered security,
    not an uncovered one, something about which the Act expresses no
    concern. See Matrixx Initiatives, Inc. v. Siracusano, 563 U. S. ___,
    ___. Further, for the connection to matter, the “someone” making the
    decision to purchase or sell a covered security must be a party other
    than the fraudster. Third, the securities cases in which this Court
    has found a fraud to be “in connection with” a purchase or sale of a
    security, under both the Litigation Act and Section 10(b) of the Secu-
    rities Exchange Act of 1934 (which also uses the “in connection with”
    phrase), have involved victims who took, who tried to take, who di-
    vested themselves of, who tried to divest themselves of, or who main-
    tained an ownership interest in financial instruments that fall within
    the relevant statutory definition. See, e.g., Merrill Lynch, Pierce,
    Fenner & Smith Inc. v. Dabit, 547 U. S. 71, 77. Fourth, this Court
    reads the Litigation Act in light of and consistent with the language
    and purpose of the underlying regulatory statutes, the Securities Ex-
    change Act of 1934 and the Securities Act of 1933, which refer to per-
    sons engaged in securities transactions that lead to the taking or dis-
    solving of ownership positions, and which make it illegal to deceive a
    person when he or she is doing so. The basic purpose of the 1934 and
    1933 regulatory statutes is to protect investor confidence in the secu-
    rities markets. Nothing in those statutes, or in the Litigation Act,
    suggests their object is to protect persons whose connection with the
    statutorily defined securities is more remote than buying or selling.
    Fifth, a broader interpretation of the necessary statutory “connec-
    tion” would interfere with state efforts to provide remedies for vic-
    tims of ordinary state-law frauds, despite the fact that the Litigation
    Act purposefully seeks to avoid such results by maintaining States’
    legal authority over matters that are primarily of state concern, see,
    e.g., §§78bb(f)(4). Pp. 9–14.
       (b) Respondents and the Government make two important, but un-
    availing, counterarguments. First, they point to this Court’s sugges-
                     Cite as: 571 U. S. ____ (2014)                     3

                                Syllabus

  tions that the phrase “in connection with” should be given a broad in-
  terpretation. But every case in which this Court interpreted the
  phrase to cover a fraud involved a false statement (or the like) that
  was “material” to another individual’s decision to “purchase or s[ell]”
  a statutorily defined “security” or “covered security,” e.g., Dabit, su-
  pra, at 75–77, and where the transaction was by or on behalf of
  someone other than the fraudster. Second, the Government warns
  that a narrow interpretation would curtail the Securities and Ex-
  change Commission’s enforcement powers under §10(b) of the Securi-
  ties Exchange Act, which uses the same “in connection with the pur-
  chase or sale” phrase. To the contrary, this Court’s interpretation is
  perfectly consistent with past SEC practice. The authority of the
  SEC and the Department of Justice extends to all “securities” under
  §10(b), not just to those traded on national exchanges. 15 U. S. C.
  §78c(a)(10). The SEC has accordingly brought successful enforce-
  ment actions against Stanford and his associates, based on the
  Bank’s fraudulent sales of certificates of deposit—products that are
  “securities” even if not “covered securities.” Neither the Government
  nor the dissent has pointed to an example of any prior SEC enforce-
  ment action that the instant holding would have prevented the SEC
  from bringing. Pp. 14–17.
     (c) Respondents’ complaints do not allege, for Litigation Act pur-
  poses, misrepresentations or omissions of material fact “in connection
  with” the “purchase or sale of a covered security.” At most, they al-
  lege misrepresentations about the Bank’s ownership of covered secu-
  rities. But the Bank is the fraudster, not the fraudster’s victim; nor
  is it some other person transacting in covered securities. Thus, there
  is not the necessary “connection” between the materiality of the mis-
  statements and the statutorily required “purchase or sale of a cov-
  ered security.” In addition, while the District Court found that one
  plaintiff acquired Bank certificates with proceeds from the sale of
  covered securities, the plaintiffs did not allege that the sale of these
  covered securities constituted any part of the fraudulent scheme or
  that Stanford or his associates were interested in how the plaintiffs
  obtained the funds to purchase the certificates. Thus, those sales
  were only incidental to the fraud. Pp. 17–19.
675 F. 3d 503, affirmed.

   BREYER, J., delivered the opinion of the Court, in which ROBERTS,
C. J., and SCALIA, THOMAS, GINSBURG, SOTOMAYOR, and KAGAN, JJ.,
joined. THOMAS, J., filed a concurring opinion. KENNEDY, J., filed a dis-
senting opinion, in which ALITO, J., joined.
                        Cite as: 571 U. S. ____ (2014)                              1

                             Opinion of the Court

     NOTICE: This opinion is subject to formal revision before publication in the
     preliminary print of the United States Reports. Readers are requested to
     notify the Reporter of Decisions, Supreme Court of the United States, Wash­
     ington, D. C. 20543, of any typographical or other formal errors, in order
     that corrections may be made before the preliminary print goes to press.

SUPREME COURT OF THE UNITED STATES
                                   _________________

                        Nos. 12–79, 12–86, and 12–88
                                   _________________

     CHADBOURNE & PARKE LLP, PETITIONER
12–79               v.
            SAMUEL TROICE ET AL.

   WILLIS OF COLORADO INCORPORATED, ET AL.,
                 PETITIONERS
12–86                 v.
             SAMUEL TROICE ET AL.

          PROSKAUER ROSE LLP, PETITIONER
12–88                  v.
               SAMUEL TROICE ET AL.

ON WRITS OF CERTIORARI TO THE UNITED STATES COURT OF
            APPEALS FOR THE FIFTH CIRCUIT
                              [February 26, 2014]

  JUSTICE BREYER delivered the opinion of the Court.
  The Securities Litigation Uniform Standards Act of
1998 (which we shall refer to as the “Litigation Act”) for-
bids the bringing of large securities class actions based
upon violations of state law. It says that plaintiffs may
not maintain a class action “based upon the statutory or
common law of any State” in which the plaintiffs allege “a
misrepresentation or omission of a material fact in con-
nection with the purchase or sale of a covered security.” 15
U. S. C. §78bb(f)(1) (emphasis added). The Act defines
2           CHADBOURNE & PARKE LLP v. TROICE

                      Opinion of the Court

“class actions” as those involving more than 50 members.
See §78bb(f)(5). It defines “covered security” narrowly to
include only securities traded on a national exchange (or,
here irrelevant, those issued by investment companies).
§§78bb(f )(5)(E), 77r(b)(1)–(2).
   The question before us is whether the Litigation Act
encompasses a class action in which the plaintiffs allege
(1) that they “purchase[d]” uncovered securities (certifi­
cates of deposit that are not traded on any national ex­
change), but (2) that the defendants falsely told the victims
that the uncovered securities were backed by covered
securities. We note that the plaintiffs do not allege that
the defendants’ misrepresentations led anyone to buy or to
sell (or to maintain positions in) covered securities. Under
these circumstances, we conclude the Act does not apply.
   In light of the dissent’s characterization of our holding,
post, at 11–12 (opinion of KENNEDY, J.)—which we believe
is incorrect—we specify at the outset that this holding
does not limit the Federal Government’s authority to
prosecute “frauds like the one here.” Post, at 11. The
Federal Government has in fact brought successful prose­
cutions against the fraudsters at the heart of this litiga­
tion, see infra, at 5–6, and we fail to understand the
dissent’s repeated suggestions to the contrary, post, at 3, 4,
11, 12, 17. Rather, as we shall explain, we believe the
basic consequence of our holding is that, without limiting
the Federal Government’s prosecution power in any sig-
nificant way, it will permit victims of this (and similar)
frauds to recover damages under state law. See infra, at
15–17. Under the dissent’s approach, they would have no
such ability.
                              I

                              A

    The relevant statutory framework has four parts:

    (1) Section 10(b) of the underlying regulatory
                   Cite as: 571 U. S. ____ (2014)               3

                       Opinion of the Court

statute, the Securities Exchange Act of 1934. 48 Stat.
891, as amended, 15 U. S. C. §78j (2012 ed.). This well­
known statutory provision forbids the “use” or “em­
ploy[ment]” of “any manipulative or deceptive device or
contrivance” “in connection with the purchase or sale of
any security.” §78j(b).
   Securities and Exchange Commission Rule 10b–5 simi­
larly forbids the use of any “device, scheme, or artifice to
defraud” (including the making of “any untrue statement
of a material fact” or any similar “omi[ssion]”) “in connec­
tion with the purchase or sale of any security.” 17 CFR
§240.10b–5 (2013).
   For purposes of these provisions, the Securities Ex­
change Act defines “security” broadly to include not just
things traded on national exchanges, but also “any note,
stock, treasury stock, security future, security-based swap,
bond, debenture . . . [or] certificate of deposit for a security.”
15 U. S. C. §78c(a)(10). See also §§77b(a)(1), 80a–2(a)
(36), 80b–2(a)(18) (providing virtually identical defini-
tions of “security” for the Securities Act of 1933, the In­
vestment Company Act of 1940, and the Investment
Advisers Act of 1940).
   (2) A statute-based private right of action. The
Court has read §10(b) and Rule 10b–5 as providing injured
persons with a private right of action to sue for damages
suffered through those provisions’ violation. See, e.g., Blue
Chip Stamps v. Manor Drug Stores, 421 U. S. 723, 730
(1975).
   The scope of the private right of action is more limited
than the scope of the statutes upon which it is based. See
Stoneridge Investment Partners, LLC v. Scientific-Atlanta,
Inc., 552 U. S. 148, 153, 155, 166 (2008) (private right does
not cover suits against “secondary actors” who had no “role
in preparing or disseminating” a stock issuer’s fraudulent
“financial statements”); Central Bank of Denver, N. A. v.
First Interstate Bank of Denver, N. A., 511 U. S. 164, 179
4          CHADBOURNE & PARKE LLP v. TROICE

                     Opinion of the Court

(1994) (private right does not extend to actions against
“aiders and abettors” of securities fraud); Blue Chip
Stamps, supra, at 737 (private right extends only to pur­
chasers and sellers, not to holders, of securities).
   (3) The Private Securities Litigation Reform Act
of 1995 (PSLRA). 109 Stat. 737, 15 U. S. C. §§77z–1,
78u–4. This law imposes procedural and substantive
limitations upon the scope of the private right of action
available under §10(b) and Rule 10b–5. It requires plain­
tiffs to meet heightened pleading standards. It permits
defendants to obtain automatic stays of discovery. It
limits recoverable damages and attorney’s fees. And it
creates a new “safe harbor” for forward-looking state­
ments. See §§78u–4, 78u–5.
   (4) The Securities Litigation Uniform Standards
Act. 112 Stat. 3227, 15 U. S. C. §78bb(f )(1)(A). As we said
at the outset, this 1998 law forbids any
    “covered class action based upon the statutory or
    common law of any State . . . by any private party
    alleging—
    “(A) a misrepresentation or omission of a material fact
    in connection with the purchase or sale of a covered
    security; or
    “(B) that the defendant used or employed any manipu­
    lative or deceptive device or contrivance in connection
    with the purchase or sale of a covered security.”
    §§78bb(f )(1)(A)–(B).
The law defines “covered security” narrowly. It is a secu­
rity that “satisfies the standards for a covered security
specified in paragraph (1) or (2) of section 18(b) of the
Securities Act of 1933.” §78bb(f )(5)(E). And the relevant
paragraphs of §18(b) of the 1933 Act define a “covered
security” as “[a security] listed, or authorized for listing,
on a national securities exchange,” §77r(b)(1) (or, though
not relevant here, as a security issued by an “investment
                  Cite as: 571 U. S. ____ (2014)            5

                      Opinion of the Court

company,” §77r(b)(2)). The Litigation Act also specifies
that a “covered security” must be listed or authorized for
listing on a national exchange “at the time during which it
is alleged that the misrepresentation, omission, or manip­
ulative or deceptive conduct occurred.” §78bb(f )(5)(E).
   The Litigation Act sets forth exceptions. It does not
apply to class actions with fewer than 51 “persons or
prospective class members.” §78bb(f )(5)(B). It does not
apply to actions brought on behalf of a State itself.
§78bb(f )(3)(B)(i). It does not apply to class actions based
on the law “of the State in which the issuer is incorpo­
rated.” §78bb(f )(3)(A)(i). And it reserves the authority of
state securities commissions “to investigate and bring
enforcement actions.” §78bb(f )(4).
   We are here primarily interested in the Litigation Act’s
phrase “misrepresentation or omission of a material fact
in connection with the purchase or sale of a covered secu­
rity.” §78bb(f)(1)(A). Unless this phrase applies to the class
actions before us, the plaintiffs may maintain their state­
law-based class actions, and they may do so either in
federal or state court. Otherwise, their class actions are
precluded altogether. See §78bb(f )(2) (providing for the
removal from state to federal court of class actions that
meet the specifications of paragraph 1, and for the dismis­
sal of such suits by the district court).
                            B
                            1
  The plaintiffs in these actions (respondents here) say
that Allen Stanford and several of his companies ran a
multibillion dollar Ponzi scheme. Essentially, Stanford
and his companies sold the plaintiffs certificates of deposit
in Stanford International Bank. Those certificates “were
debt assets that promised a fixed rate of return.” Roland
v. Green, 675 F. 3d 503, 522 (CA5 2012). The plaintiffs
expected that Stanford International Bank would use the
6          CHADBOURNE & PARKE LLP v. TROICE

                     Opinion of the Court

money it received to buy highly lucrative assets. But
instead, Stanford and his associates used the money pro­
vided by new investors to repay old investors, to finance
an elaborate lifestyle, and to finance speculative real
estate ventures.
   The Department of Justice brought related criminal
charges against Allen Stanford. A jury convicted Stanford
of mail fraud, wire fraud, conspiracy to commit money
laundering, and obstruction of a Securities and Exchange
Commission investigation. Stanford was sentenced to
prison and required to forfeit $6 billion. The SEC, noting
that the Bank certificates of deposit fell within the 1934
Securities Exchange Act’s broad definition of “security,”
filed a §10(b) civil case against Allen Stanford, the Stan­
ford International Bank, and related Stanford companies
and associates. The SEC won the civil action, and the
court imposed a civil penalty of $6 billion.
                             2
  The plaintiffs in each of the four civil class actions are
private investors who bought the Bank’s certificates of
deposit. Two groups of plaintiffs filed their actions in
Louisiana state court against firms and individuals who
helped sell the Bank’s certificates by working as “invest­
ment advisers” affiliated with Stanford, or who provided
Stanford-related companies with trust, insurance, ac­
counting, or reporting services. (The defendants included
a respondent here, SEI Investments Company.) The
plaintiffs claimed that the defendants helped the Bank
perpetrate the fraud, thereby violating Louisiana state
law.
  Two other groups of plaintiffs filed their actions in
federal court for the Northern District of Texas. One
group sued Willis of Colorado (and related Willis compa­
nies) and Bowen, Miclette & Britt, two insurance brokers;
the other group sued Proskauer Rose and Chadbourne &
                 Cite as: 571 U. S. ____ (2014)            7

                     Opinion of the Court

Parke, two law firms. Both groups claimed that the de­
fendants helped the Bank (and Allen Stanford) perpetrate
the fraud or conceal it from regulators, thereby violating
Texas securities law.
    The Louisiana state-court defendants removed their
cases to federal court, and the Judicial Panel on Multi-
District Litigation moved the Louisiana cases to the
Northern District of Texas. A single federal judge heard
all four class actions.
    The defendants in each of the cases moved to dismiss
the complaints. The District Court concluded that the
Litigation Act required dismissal. The court recognized
that the certificates of deposit themselves were not “cov­
ered securities” under the Litigation Act, for they were not
“ ‘traded nationally [or] listed on a regulated national
exchange.’ ” App. to Pet. for Cert. in No. 12–86, p. 62.
But each complaint in one way or another alleged that
the fraud included misrepresentations that the Bank
maintained significant holdings in “ ‘highly marketable se-
curities issued by stable governments [and] strong mul-
tinational companies,’ ” and that the Bank’s ownership of
these “covered” securities made investments in the uncovered
certificates more secure. Id., at 66. The court concluded
that this circumstance provided the requisite statutory
“connection” between (1) the plaintiffs’ state-law fraud
claims, and (2) “transactions in covered securities.” Id., at
64, 66–67. Hence, the court dismissed the class actions
under the Litigation Act. Id., at 75. See also 675 F. 3d,
at 511.
    All four sets of plaintiffs appealed. The Fifth Circuit
reversed. It agreed with the District Court that the com­
plaints described misrepresentations about the Bank’s
investments in nationally traded securities. Still, the
“heart, crux, and gravamen of ” the “allegedly fraudulent
scheme was representing . . . that the [uncovered] CDs
were a ‘safe and secure’ investment that was preferable to
8           CHADBOURNE & PARKE LLP v. TROICE

                      Opinion of the Court

other investments for many reasons.” Id., at 522. The
court held that the falsehoods about the Bank’s holdings
in covered securities were too “ ‘tangentially related’ ” to
the “crux” of the fraud to trigger the Litigation Act. Id., at
520, 522 (quoting Madden v. Cowen & Co., 576 F. 3d 957,
965–966 (CA9 2009)). “That the CDs were marketed with
some vague references to [the Bank’s] portfolio containing
instruments that might be [covered by the Litigation Act]
seems tangential to the schemes,” to the point where the
complaints fall outside the scope of that Act. 675 F. 3d,
at 522.
  Defendants in the four class actions sought certiorari.
We granted their petitions.
                               II
   The question before us concerns the scope of the Litiga­
tion Act’s phrase “misrepresentation or omission of a
material fact in connection with the purchase or sale of
a covered security.” §78bb(f )(1)(A). How broad is that
scope? Does it extend further than misrepresentations
that are material to the purchase or sale of a covered
security?
   In our view, the scope of this language does not extend
further. To put the matter more specifically: A fraudulent
misrepresentation or omission is not made “in connection
with” such a “purchase or sale of a covered security” un­
less it is material to a decision by one or more individuals
(other than the fraudster) to buy or to sell a “covered
security.” We add that in Merrill Lynch, Pierce, Fenner &
Smith Inc. v. Dabit, 547 U. S. 71 (2006), we held that the
Litigation Act precluded a suit where the plaintiffs alleged
a “fraudulent manipulation of stock prices” that was mate­
rial to and “ ‘concide[d]’ with” third-party securities trans­
actions, while also inducing the plaintiffs to “hold their
stocks long beyond the point when, had the truth been
known, they would have sold.” Id., at 75, 85, 89 (citing
                 Cite as: 571 U. S. ____ (2014)           9

                     Opinion of the Court

United States v. O’Hagan, 521 U. S. 642, 651 (1997)). We
do not here modify Dabit.
                                 A
   We reach this interpretation of the Litigation Act for
several reasons. First, the Act focuses upon transactions
in covered securities, not upon transactions in uncovered
securities. An interpretation that insists upon a material
connection with a transaction in a covered security is
consistent with the Act’s basic focus.
   Second, a natural reading of the Act’s language supports
our interpretation. The language requires the dismissal of
a state-law-based class action where a private party alleges
a “misrepresentation or omission of a material fact” (or
engages in other forms of deception, not relevant here) “in
connection with the purchase or sale of a covered secu­
rity.” §78bb(f)(1). The phrase “material fact in connection
with the purchase or sale” suggests a connection that
matters. And for present purposes, a connection matters
where the misrepresentation makes a significant differ­
ence to someone’s decision to purchase or to sell a covered
security, not to purchase or to sell an uncovered security,
something about which the Act expresses no concern. See
generally Matrixx Initiatives, Inc. v. Siracusano, 563 U. S.
___, ___ (2011) (slip op., at 9–12) (a misrepresentation or
omission is “material” if a reasonable investor would have
considered the information significant when contemplat­
ing a statutorily relevant investment decision). Further,
the “someone” making that decision to purchase or sell
must be a party other than the fraudster. If the only party
who decides to buy or sell a covered security as a result of
a lie is the liar, that is not a “connection” that matters.
   Third, prior case law supports our interpretation. As far
as we are aware, every securities case in which this Court
has found a fraud to be “in connection with” a purchase or
sale of a security has involved victims who took, who tried
10         CHADBOURNE & PARKE LLP v. TROICE

                     Opinion of the Court

to take, who divested themselves of, who tried to divest
themselves of, or who maintained an ownership interest in
financial instruments that fall within the relevant statu­
tory definition. See, e.g., Dabit, supra, at 77 (Litigation
Act: victims were “holders” of covered securities that the
defendant’s fraud caused to become overvalued); SEC v.
Zandford, 535 U. S. 813, 822 (2002) (§10(b): victims were
“duped into believing” that the defendant would “ ‘invest’
their assets in the stock market”); Wharf (Holdings) Ltd.
v. United Int’l Holdings, Inc., 532 U. S. 588, 592 (2001)
(§10(b): victim purchased an oral option to buy 10% of a
company’s stock); O’Hagan, supra, at 655–656 (§10(b):
victims were “members of the investing public” harmed by
the defendant’s “gain[ing of an] advantageous market
position” through insider trading); Superintendent of Ins.
of N. Y. v. Bankers Life & Casualty Co., 404 U. S. 6, 10
(1971) (§10(b): victim was “injured as an investor” when
the fraud deprived it of “compensation for the sale of its
valuable block of securities”). We have found no Court
case involving a fraud “in connection with” the purchase or
sale of a statutorily defined security in which the victims
did not fit one of these descriptions. And the dissent
apparently has not either.
   Although the dissent characterizes our approach as
“new,” post, at 3, and tries to describe several of our prior
cases, such as Zanford or Dabit, in a different way, post, at
14–15, it cannot escape the fact that every case it cites
involved a victim who took, tried to take, or maintained an
ownership position in the statutorily relevant securities
through “purchases” or “sales” induced by the fraud. E.g.,
Zandford, supra, at 815, 820 (fraudster told customers
he would “ ‘conservatively invest’ their money” in the stock
market and made sales of “his customer’s securities,”
but pocketed the proceeds (emphasis added)); Dabit, supra,
at 76, 85, 89 (the “misrepresentations and manipulative
tactics caused [the plaintiffs] to hold onto overvalued
                  Cite as: 571 U. S. ____ (2014)           11

                      Opinion of the Court

securities” while also inducing third parties to trade
them); In re Orlando Joseph Jett, 82 S. E. C. Docket 1211,
1236–1237 (2004) (trader’s scheme “greatly inflated the
reporting trading profits” that his firm “used to determine
. . . the amount of capital he was permitted to commit on
the firm’s behalf ” (emphasis added)).
   Fourth, we read the Litigation Act in light of and con­
sistent with the underlying regulatory statutes, the Secu­
rities Exchange Act of 1934 and the Securities Act of 1933.
The regulatory statutes refer to persons engaged in securi­
ties transactions that lead to the taking or dissolving of
ownership positions. And they make it illegal to deceive a
person when he or she is doing so. Section 5 of the 1933
Act, for example, makes it unlawful to “offer to sell or offer
to buy . . . any security, unless a registration statement
has been filed as to such security.” 15 U. S. C. §77e(c).
Section 17 of the 1933 Act makes it unlawful “in the offer
or sale of any securities . . . to employ any device, scheme,
or artifice to defraud, or to obtain money or property
by means of any untrue statement of a material fact.”
§§77q(a)(1)–(2). And §10(b) of the 1934 Act makes it
unlawful to “use or employ, in connection with the pur­
chase or sale of any security . . . any manipulative or de-
ceptive device or contrivance.” §78j(b).
   Not only language but also purpose suggests a statutory
focus upon transactions involving the statutorily relevant
securities. The basic purpose of the 1934 and 1933 regula­
tory statutes is “to insure honest securities markets and
thereby promote investor confidence.” See O’Hagan, su-
pra, at 658. Nothing in the regulatory statutes suggests
their object is to protect persons whose connection with
the statutorily defined securities is more remote than
words such as “buy,” “sell,” and the like, indicate. Nor
does anything in the Litigation Act provide us with rea­
sons for interpreting its similar language more broadly.
   The dissent correctly points out that the federal securi­
12         CHADBOURNE & PARKE LLP v. TROICE

                     Opinion of the Court

ties laws have another purpose, beyond protecting inves­
tors. Namely, they also seek to protect securities issuers,
as well as the investment advisers, accountants, and
brokers who help them sell financial products, from abu­
sive class-action lawsuits. Post, at 5. Both the PSLRA
and the Litigation Act were enacted in service of that goal.
By imposing heightened pleading standards, limiting
damages, and pre-empting state-law suits where the
claims pertained to covered securities, Congress sought to
reduce frivolous suits and mitigate legal costs for firms
and investment professionals that participate in the mar­
ket for nationally traded securities.
   We fail to see, however, how our decision today under­
mines that objective. The dissent worries our approach
will “subject many persons and entities whose profession it
is to give advice, counsel, and assistance in investing in
the securities markets to complex and costly state-law
litigation.” Post, at 4. To the contrary, the only issuers,
investment advisers, or accountants that today’s decision
will continue to subject to state-law liability are those who
do not sell or participate in selling securities traded on
U. S. national exchanges. We concede that this means a
bank, chartered in Antigua and whose sole product is a
fixed-rate debt instrument not traded on a U. S. exchange,
will not be able to claim the benefit of preclusion under the
Litigation Act. But it is difficult to see why the federal
securities laws would be—or should be—concerned with
shielding such entities from lawsuits.
   Fifth, to interpret the necessary statutory “connection”
more broadly than we do here would interfere with state
efforts to provide remedies for victims of ordinary state­
law frauds. A broader interpretation would allow the
Litigation Act to cover, and thereby to prohibit, a lawsuit
brought by creditors of a small business that falsely repre­
sented it was creditworthy, in part because it owns or
intends to own exchange-traded stock. It could prohibit a
                 Cite as: 571 U. S. ____ (2014)           13

                     Opinion of the Court

lawsuit brought by homeowners against a mortgage bro­
ker for lying about the interest rates on their mortgages—
if, say, the broker (not the homeowners) later sold the
mortgages to a bank which then securitized them in a pool
and sold off pieces as “covered securities.” Brief for Six­
teen Law Professors as Amici Curiae 24.
   The dissent all but admits this. Its proposed rule is that
whenever “the purchase or sale of the securities [including
by the fraudster] is what enables the fraud,” the Litigation
Act pre-empts the suit. Post, at 12. In other words, any
time one person convinces another to loan him money, by
pretending he owns nationally traded securities or will
acquire them for himself in the future, the action consti­
tutes federal securities fraud, is subject to federal en­
forcement, and is also precluded by the Litigation Act if it
qualifies as a “covered class action” under §78bb(f )(5)(B)
(e.g., involves more than 50 members). Leaving aside
whether this would work a significant expansion of the
scope of liability under the federal securities laws, it un­
questionably would limit the scope of protection under
state laws that seek to provide remedies to victims of
garden-variety fraud.
   The text of the Litigation Act reflects congressional care
to avoid such results. Under numerous provisions, it
purposefully maintains state legal authority, especially
over matters that are primarily of state concern. See
§§78bb(f )(1)(A)–(B) (limiting preclusion to lawsuits in-
volving “covered,” i.e., nationally traded, securities);
§78bb(f )(4) (providing that the “securities commission . . .
of any State shall retain jurisdiction under the laws of
such State to investigate and bring enforcement actions”);
§78bb(f )(3)(B) (preserving States’ authority to bring suits
of the kind forbidden to private class-action plaintiffs).
See also 112 Stat. 3227 (“Congress finds that . . . it is
appropriate to enact national standards for securities class
action lawsuits involving nationally traded securities,
14          CHADBOURNE & PARKE LLP v. TROICE

                       Opinion of the Court

while preserving the appropriate enforcement powers of
State securities regulators”). A broad interpretation of the
Litigation Act works at cross-purposes with this state­
oriented concern. Cf. Zandford, 535 U. S., at 820 (warning
against “constru[ing]” the phrase “in connection with” “so
broadly as to convert any common-law fraud that happens
to involve securities into a violation of §10(b)”); Wharf
(Holdings) Ltd., 532 U. S., at 596 (recognizing that “ordi­
nary state breach-of-contract claims” are “actions that lie
outside the [Securities Exchange] Act’s basic objectives”).
                                 B
   Respondents and the Government make two important
counterarguments. Respondents point to statements we
have made suggesting we should give the phrase “in con­
nection with” a broad interpretation. In Dabit, for exam­
ple, we said that the Court has consistently “espoused a
broad interpretation” of “in connection with” in the context
of §10(b) and Rule 10b–5, and we added that the Litiga­
tion Act language similarly warranted a “broad construc­
tion.” 547 U. S., at 85–86. In Bankers Life, we said that,
if a deceptive practice “touch[es]” a securities transaction,
it meets §10(b)’s “in connection with” requirement, 404
U. S., at 12, and in O’Hagan, we said the fraud and the
purchase or sale of a security must simply “coincide.” 521
U. S., at 656. The idea, we explained in Zandford, is that
the phrase “should be ‘construed not technically and re­
strictively, but flexibly to effectuate its remedial purposes.’ ”
535 U. S., at 819 (quoting Affiliated Ute Citizens of
Utah v. United States, 406 U. S. 128, 151 (1972)).
   Every one of these cases, however, concerned a false
statement (or the like) that was “material” to another
individual’s decision to “purchase or s[ell]” a statutorily
defined “security” or “covered security.” Dabit, supra, at
75–77; Zandford, supra, at 822; Wharf (Holdings) Ltd.,
supra, at 590–592; O’Hagan, supra, at 655–657; Bankers
                 Cite as: 571 U. S. ____ (2014)          15

                     Opinion of the Court

Life, supra, at 10. And the relevant statements or omis­
sions were material to a transaction in the relevant securi­
ties by or on behalf of someone other than the fraudster.
   Second, the Government points out that §10(b) of the
Securities Exchange Act also uses the phrase “in connec­
tion with the purchase or sale of any security.” 15 U. S. C.
§78j(b). And the Government warns that a narrow inter­
pretation of “in connection with” here threatens a simi-
larly narrow interpretation there, which could limit the
SEC’s enforcement capabilities. See Brief for United
States as Amicus Curiae 28.
   We do not understand, however, how our interpretation
could significantly curtail the SEC’s enforcement powers.
As far as the Government has explained the matter, our
interpretation seems perfectly consistent with past SEC
practice. For one thing, we have cast no doubt on the
SEC’s ability to bring enforcement actions against Stan­
ford and Stanford International Bank. The SEC has
already done so successfully. As we have repeatedly
pointed out, the term “security” under §10(b) covers a wide
range of financial products beyond those traded on national
exchanges, apparently including the Bank’s certificates
of deposit at issue in these cases. No one here denies that,
for §10(b) purposes, the “material” misrepresentations by
Stanford and his associates were made “in connection
with” the “purchases” of those certificates.
   We find it surprising that the dissent worries that our
decision will “narro[w] and constric[t] essential protection
for our national securities market,” post, at 3, and put
“frauds like the one here . . . not within the reach of fed-
eral regulation,” post, at 11. That would be news to Allen
Stanford, who was sentenced to 110 years in federal prison
after a successful federal prosecution, and to Stanford
International Bank, which was ordered to pay billions in
federal fines, after the same. Frauds like the one here—
including this fraud itself—will continue to be within the
16         CHADBOURNE & PARKE LLP v. TROICE

                     Opinion of the Court

reach of federal regulation because the authority of the
SEC and Department of Justice extends to all “securities,”
not just to those traded on national exchanges. 15 U. S. C.
§78c(a)(10); accord, §77b(a)(1), §80a–2(a)(36), §80b–
2(a)(18). When the fraudster peddles an uncovered secu-
rity like the CDs here, the Federal Government will have
the full scope of its usual powers to act. The only differ­
ence between our approach and that of the dissent, is that
we also preserve the ability for investors to obtain relief
under state laws when the fraud bears so remote a connec­
tion to the national securities market that no person
actually believed he was taking an ownership position in
that market.
   Thus, despite the Government’s and the dissent’s hand
wringing, neither has been able to point to an example of
any prior SEC enforcement action brought during the past
80 years that our holding today would have prevented the
SEC from bringing. At oral argument, the Government
referred to an administrative proceeding, In re Richard
Line, 62 S. E. C. Docket 2879 (1996), as its best example.
Our examination of the report of that case, however, indi­
cates that the defendant was a fraudster to whom the
fraud’s victims had loaned money, expecting that he would
purchase securities on their behalf. Id., at 2880 (“Line
represented to investors that he would invest their non­
admitted assets in various securities, including U. S.
Treasury notes, mutual fund shares, and collateralized
debt obligations”); ibid. (“[He] fabricated account state­
ments which falsely recited that securities had been
purchased on behalf of certain investors”).
   The Government’s brief refers to two other proceedings
as demonstrating the SEC’s broad §10(b) enforcement
powers. Each, however, involved defrauded investors who
had tried to take an ownership interest in the relevant
securities. Jett, 82 S. E. C. Docket, at 1251 (involving a
§10(b) action where a defrauded trading firm’s “decision to
                  Cite as: 571 U. S. ____ (2014)           17

                      Opinion of the Court

purchase or ‘invest’ in strips or bonds . . . stemmed directly
from the activity that constituted the fraud”); In re D. S.
Waddy & Co., 30 S. E. C. 367, 368 (1949) (involving a
§10(b) action where a broker “appropriated to his own use
money paid to him by customers for securities purchases”).
We have examined SEC records without finding any fur­
ther examples.
   For these reasons, the dissent’s warning that our de-
cision will “inhibit” “litigants from using federal law to
police frauds” and will “undermine the primacy of federal
law in policing abuses in the securities markets” rings
hollow. Post, at 4, 5. The dissent cannot point to one
example of a federal securities action—public or private—
that would have been permissible in the past but that our
approach will disallow in the future. And the irony of the
dissent’s position is that federal law would have precluded
private recovery in these very suits, because §10(b) does
not create a private right of action for investors vis-à-vis
“secondary actors” or “aiders and abettors” of securities
fraud. Stoneridge Investment Partners, 552 U. S., at 152,
155; Central Bank of Denver, 511 U. S., at 180; accord,
Brief for Petitioners in No. 12–86, p. 46 (“Any federal
securities action against Petitioners would clearly run
afoul of Central Bank and Stoneridge”); Brief for Respon-
dents 48 (same); Brief for United States as Amicus Curiae
28 (same).
                            III
   Respondents’ complaints specify that their claims rest
upon their purchases of uncovered, not of covered, securi­
ties. Our search for allegations that might bring their
allegations within the scope of the Litigation Act reveals
the following:
   (1) The first set of Texas plaintiffs alleged that they
bought certificates of deposit from Stanford International
Bank because they were told “the CDs issued by SIB
18         CHADBOURNE & PARKE LLP v. TROICE

                     Opinion of the Court

were safer even than U. S. bank-issued CDs” and “could be
redeemed at any time,” given that the Bank “only invested
the money [i.e., the Bank’s money obtained from its certifi­
cate sale proceeds] in safe, secure, and liquid assets.” App.
433. They claimed Stanford “touted the high quality of
SIB’s investment portfolio,” and such falsehoods were
material to their decision to purchase the uncovered certif­
icates. Id., at 444.
   (2) The second set of Texas plaintiffs contended that
they, too, purchased the Bank’s certificates on the belief
“that their money was being invested in safe, liquid in­
vestments.” Id., at 715. They alleged that the Bank’s
marketing materials stated it devoted “the greater part of
its assets” to “first grade investment bonds (AAA, AA+,
AA) and shares of stock (of great reputation, liquidity, and
credibility).” Id., at 744 (emphasis deleted).
   (3) Both groups of Louisiana plaintiffs alleged that they
were induced to purchase the certificates based on misrep­
resentations that the Bank’s assets were “ ‘invested in a
well-diversified portfolio of highly marketable securities
issued by stable governments, strong multinational com­
panies and major international banks.’ ” Id., at 253, 345.
And they claimed the “ ‘liquidity/marketability of SIB’s
invested assets’ ” was “the most important factor to pro­
vide security to SIB clients.” Id., at 254.
   These statements do not allege, for Litigation Act pur­
poses, misrepresentations or omissions of material fact “in
connection with” the “purchase or sale of a covered secu-
rity.” At most, the complaints allege misrepresentations
about the Bank’s ownership of covered securities—
fraudulent assurances that the Bank owned, would own,
or would use the victims’ money to buy for itself shares of
covered securities. But the Bank is an entity that made
the misrepresentations. The Bank is the fraudster, not
the fraudster’s victim. Nor is the Bank some other person
transacting (or refraining from transacting, see Dabit, 547
                  Cite as: 571 U. S. ____ (2014)            19

                      Opinion of the Court

U. S., at 75–77) in covered securities. And consequently,
there is not the necessary “connection” between the mate­
riality of the misstatements and the statutorily required
“purchase or sale of a covered security.” See supra, at 8.
  A final point: The District Court found that one of the
plaintiffs acquired Bank certificates “with the proceeds of
selling” covered securities contained in his IRA portfolio.
App. to Pet. for Cert. in No. 12–86, p. 70. The plaintiffs,
however, did not allege that the sale of these covered
securities (which were used to finance the purchase of the
certificates) constituted any part of the fraudulent scheme.
Nor did the complaints allege that Stanford or his associ­
ates were at all interested in how the plaintiffs obtained
the funds they needed to purchase the certificates. Thus,
we agree with the Court of Appeals that “[u]nlike Bankers
Life and Zandford, where the entirety of the fraud de­
pended upon the tortfeasor convincing the victims of those
fraudulent schemes to sell their covered securities in order
for the fraud to be accomplished, the allegations here are
not so tied with the sale of covered securities.” 675 F. 3d,
at 523. In our view, like that of the Court of Appeals,
these sales constituted no relevant part of the fraud but
were rather incidental to it.
  For these reasons the Court of Appeals’ judgment is
affirmed.
                                              It is so ordered.
                  Cite as: 571 U. S. ____ (2014)             1

                     THOMAS, J., concurring

SUPREME COURT OF THE UNITED STATES
                          _________________

                  Nos. 12–79, 12–86, and 12–88
                          _________________

     CHADBOURNE & PARKE LLP, PETITIONER
12–79               v.
            SAMUEL TROICE ET AL.

   WILLIS OF COLORADO INCORPORATED, ET AL.,
                 PETITIONERS
12–86                 v.
             SAMUEL TROICE ET AL.

         PROSKAUER ROSE LLP, PETITIONER
12–88                 v.
              SAMUEL TROICE ET AL.

ON WRITS OF CERTIORARI TO THE UNITED STATES COURT OF
            APPEALS FOR THE FIFTH CIRCUIT
                      [February 26, 2014]

   JUSTICE THOMAS, concurring.
   I join the opinion of the Court on the understanding that
the “misrepresentation[s] . . . of . . . material fact” alleged
in this case are not properly considered “in connection
with” transactions in covered securities. 15 U. S. C. §78bb(f )
(1)(A). We have said that the statutory phrase “in connec-
tion with” warrants a “broad interpretation,” Merrill
Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U. S. 71,
85 (2006), though not so broad as to reach any “common-
law fraud that happens to involve securities,” see SEC
v. Zandford, 535 U. S. 813, 820 (2002). Considered in
isolation, however, that phrase “is essentially ‘indetermi-
nat[e]’ because connections, like relations, ‘stop nowhere.’ ”
2          CHADBOURNE & PARKE LLP v. TROICE

                    THOMAS, J., concurring

Maracich v. Spears, 570 U. S. ___, ___ (2013) (slip op., at
9) (some internal quotation marks omitted). The phrase
thus “provides little guidance without a limiting principle
consistent with the structure of the statute and its other
provisions.” Ibid. As I understand it, the opinion of the
Court resolves this case by applying a limiting principle to
the phrase “in connection with” that is “consistent with
the statutory framework and design” of the Securities
Litigation Uniform Standards Act of 1998, id., at ___ (slip
op., at 10), and also consistent with our precedents.
                 Cite as: 571 U. S. ____ (2014)          1

                   KENNEDY, J., dissenting

SUPREME COURT OF THE UNITED STATES
                         _________________

                Nos. 12–79, 12–86, and 12–88
                         _________________

     CHADBOURNE & PARKE LLP, PETITIONER
12–79               v.
            SAMUEL TROICE ET AL.

   WILLIS OF COLORADO INCORPORATED, ET AL.,
                 PETITIONERS
12–86                 v.
             SAMUEL TROICE ET AL.

        PROSKAUER ROSE LLP, PETITIONER
12–88                v.
             SAMUEL TROICE ET AL.

ON WRITS OF CERTIORARI TO THE UNITED STATES COURT OF
            APPEALS FOR THE FIFTH CIRCUIT
                     [February 26, 2014]

   JUSTICE KENNEDY, with whom JUSTICE ALITO joins,
dissenting.
   A number of investors purchased certificates of deposit
(CDs) in the Stanford International Bank (SIB). For pur-
poses of this litigation all accept the premise that Allen
Stanford and SIB induced the investors to purchase the
CDs by fraudulent representations. In various state and
federal courts the investors filed state-law suits against
persons and entities, including attorneys, accountants,
brokers, and investment advisers, alleging that they par-
ticipated in or enabled the fraud. The defendants in the
state-court suits removed the actions to federal court,
where they were consolidated with the federal-court suits.
2          CHADBOURNE & PARKE LLP v. TROICE

                    KENNEDY, J., dissenting

The defendants contended that the state-law suits are
precluded under the terms of the Securities Litigation
Uniform Standards Act of 1998 (SLUSA or Act), 15 U. S. C.
§78bb(f)(1). As the investors prevailed in the Court of
Appeals, they are the respondents here. The persons and
entities who were defendants in the state-law actions are
the petitioners. The investors contend the state-law suits
are not precluded by SLUSA, and the petitioners contend
the suits are precluded.
   For purposes of determining SLUSA’s reach, all can
agree that the CD purchases would not have been, without
more, transactions regulated by that Act; for the CDs were
not themselves covered securities. As a result, in deter-
mining whether the Act must be invoked, a further cir-
cumstance must be considered: The investors purchased
the CDs based on the misrepresentations that the CDs
were, or would be, backed by investments in, among other
assets, covered securities.
   What must be resolved, to determine whether the Act
precludes the state-law suits at issue, is whether the
misrepresentations regarding covered securities and the
ensuing failure to invest in those securities were so related
to the purchase of the CDs that the misrepresentations
were “misrepresentation[s] or omission[s] of a material
fact in connection with the purchase or sale of a covered
security.” 15 U. S. C. §78bb(f)(1)(A).
   The opinion for the Court, it seems fair to say, adopts
this beginning framework, and it is quite correct to do so.
The Court is further correct to view this litigation as in-
volving a fraud of a type, scale, and perhaps sophistica-
tion that has not yet been addressed in its precedents with
respect to the applicability of the federal securities laws.
   It is the premise of this dissent that the more simple
frauds addressed in this Court’s precedents, where the
Court did find fraud “in connection with the purchase or
sale,” are applicable here. In those cases, as here, the
                  Cite as: 571 U. S. ____ (2014)            3

                    KENNEDY, J., dissenting

immediate cause of loss to the victim of the fraud was not
simply a purchase or sale but rather a fraud that depended
on the purchase or sale of securities or the promise to
do so. It is submitted that this litigation should not come
out differently simply because the fraud here was so wide-
spread that many investors were misled by misrepresenta-
tions respecting investments, or promised investments, in
regulated securities in the markets. And it is necessary to
caution that, in holding otherwise, the Court adopts a new
approach, an approach which departs from the rules es-
tablished in the earlier, albeit simpler, cases. And, as a
consequence, today’s decision, to a serious degree, narrows
and constricts essential protection for our national securi-
ties markets, protection vital for their strength and in-
tegrity. The result will be a lessened confidence in the
market, a force for instability that should otherwise be
countered by the proper interpretation of federal securities
laws and regulations. Though the reasons supporting the
Court’s opinion are set forth with care and clarity, this
respectful dissent submits that established principles do
not support its holding.
                                I
    It must be determined whether the misrepresentations
to the investors—misrepresentations that led them to buy
CDs in the belief they could rely on the expertise and
sophistication of Stanford and SIB in the national securi-
ties markets—were “misrepresentation[s] or omission[s] of
. . . material fact[s] in connection with the purchase or sale
of a covered security.” 15 U. S. C. §78bb(f)(1). This is the
central provision of SLUSA for purposes of this litigation.
The Court’s precedents instruct that this language has
broad application and must be construed flexibly in order
to encompass new and ever more ingenious fraudulent
schemes. Merrill Lynch, Pierce, Fenner & Smith Inc. v.
Dabit, 547 U. S. 71, 85 (2006); SEC v. Zandford, 535 U. S.
4           CHADBOURNE & PARKE LLP v. TROICE

                    KENNEDY, J., dissenting

813, 819 (2002). The Court has held that a material mis-
representation is made “in connection with the purchase
or sale” of a security when the “fraud coincided with the
sales [or purchases] themselves.” Zandford, supra, at 820.
   This significant language must apply here in order to
implement two of Congress’ purposes in passing SLUSA.
First, SLUSA seeks to preclude a broad range of state-
law securities claims in order to protect those who advise,
counsel, and otherwise assist investors from abusive and
multiplicitous class actions designed to extract settlements
from defendants vulnerable to litigation costs. This,
in turn, protects the integrity of the markets. Second,
even as the Act cuts back on the availability of state-law
securities claims, a fair interpretation of its language
ensures robust federal regulation of the national securities
markets. That is because, in designing SLUSA, Congress
“imported the key phrase” from §10(b) of the Securities
Exchange Act of 1934 and Securities and Exchange Com-
mission (SEC) Rule 10b–5, which provide a private cause
of action, as well as SEC enforcement authority, for secu-
rities fraud. Dabit, 547 U. S., at 79, 85. As a result, that
language must be “ ‘presumed to have the same meaning’ ”
in SLUSA as it does in those contexts. Id., at 86.
   The Court’s narrow interpretation of the Act’s language
will inhibit the SEC and litigants from using federal law
to police frauds and abuses that undermine confidence in
the national securities markets. Throughout the country,
then, it will subject many persons and entities whose
profession it is to give advice, counsel, and assistance in
investing in the securities markets to complex and costly
state-law litigation based on allegations of aiding or par-
ticipating in transactions that are in fact regulated by the
federal securities laws.
                          A
    Congress enacted SLUSA and its predecessor, the Pri-
                 Cite as: 571 U. S. ____ (2014)            5

                    KENNEDY, J., dissenting

vate Securities Litigation Reform Act of 1995, to reform
“perceived abuses of the class-action vehicle in litigation
involving nationally traded securities.” Dabit, 547 U. S.,
at 81. Congress found that these abuses were being used
“to injure ‘the entire U. S. economy.’ ” Ibid. The Act and
its predecessor together addressed these problems by
limiting damages, imposing heightened pleading stand-
ards, and, as most relevant here, precluding state-law
claims involving nationally traded securities. 112 Stat.
3227; see S. Rep. No. 104–98, pp. 19–20 (1995); H. R. Rep.
No. 105–640, p. 10 (1998); S. Rep. No. 105–182, pp. 3–4
(1998).
   In light of the Act’s objectives, the Act must be given
a “broad construction,” because a “narrow reading of the
statute would undercut the effectiveness” of Congress’
reforms. Dabit, supra, at 86. Today’s decision does not
heed that principle. The Court’s narrow reading of the
statute will permit proliferation of state-law class actions,
forcing defendants to defend against multiple suits in
various state fora. This state-law litigation will drive up
legal costs for market participants and the secondary
actors, such as lawyers, accountants, brokers, and advis-
ers, who seek to rely on the stability that results from a
national securities market regulated by federal law. See
Central Bank of Denver, N. A. v. First Interstate Bank of
Denver, N. A., 511 U. S. 164, 189 (1994). This is a serious
burden to put on attorneys, accountants, brokers, and
investment advisers nationwide; and that burden itself
will make the national securities markets more costly and
difficult to enter. The purpose of the Act is to preclude
just these suits. By permitting the very state-law claims
Congress intended to prohibit, the Court will undermine
the primacy of federal law in policing abuses in the securi-
ties markets.
   The Court casts its rule as allowing victims to recover
against secondary actors under state law when they would
6           CHADBOURNE & PARKE LLP v. TROICE

                    KENNEDY, J., dissenting

not be able to recover under federal law due to Central
Bank. Ante, at 12, 17. But in Dabit a unanimous Court
rejected that conception of SLUSA. A federal-law claim
was not available to the plaintiffs in Dabit because Blue
Chip Stamps v. Manor Drug Stores, 421 U. S. 723 (1975),
limited the Rule 10b–5 private right of action to purchas-
ers and sellers, not holders. “[T]he Second Circuit held
that SLUSA only pre-empts state-law class action claims
brought by plaintiffs who have a private remedy under
federal law.” 547 U. S., at 74. The Court held the oppo-
site, “concluding that SLUSA pre-empts state-law holder
class-action claims.” Id., at 87. “It would be odd, to say
the least,” the Court reasoned, “if SLUSA exempted that
particularly troublesome subset of class actions from its
pre-emptive sweep.” Id., at 86. The Court in Dabit also
noted that SLUSA preclusion does not leave victims with
“no” ability to “recover damages under state law.” Ante, at
2. Rather, “[i]t simply denies plaintiffs the right to use the
class-action device to vindicate certain claims.” 547 U. S.,
at 87. The Court in Dabit precluded the suit at issue in
order to effect the purpose of Blue Chip. By following the
opposite course today, the Court revisits Dabit’s logic and
undermines Central Bank.
                               B
    Congress intended to make “federal law, not state law,
. . . the principal vehicle for asserting class-action securi-
ties fraud claims.” Dabit, supra, at 88. And a broad con-
struction of the “in connection with” language found in
both SLUSA and Rule 10b–5 ensures an efficient and
effective federal regulatory regime, one equal to the task
of deterring and punishing fraud and providing compensa-
tion for victims.
    In undertaking regulation of the national markets
during the Great Depression, Congress sought to elimi-
nate the “abuses which were found to have contributed to
                 Cite as: 571 U. S. ____ (2014)            7

                    KENNEDY, J., dissenting

the stock market crash of 1929 and the depression of the
1930’s.” SEC v. Capital Gains Research Bureau, Inc., 375
U. S. 180, 186 (1963). “ ‘It requires but little appreciation
. . . of what happened in this country during the 1920’s
and 1930’s to realize how essential it is that the highest
ethical standards prevail’ in every facet of the securities
industry.” Id., at 186–187 (quoting Silver v. New York
Stock Exchange, 373 U. S. 341, 366 (1963)). In the Securi-
ties Exchange Act, Congress sought “ ‘to achieve a high
standard of business ethics in the securities industry’ ”
by “ ‘substitut[ing] a philosophy of full disclosure for the
philosophy of caveat emptor.’ ” Affiliated Ute Citizens of
Utah v. United States, 406 U. S. 128, 151 (1972). To that
end, Congress enacted §10(b) “to insure honest securities
markets and thereby promote investor confidence.” United
States v. O’Hagan, 521 U. S. 642, 658 (1997).
    Investor confidence indicates fair dealing and integrity
in the markets. See Dabit, supra, at 78; O’Hagan, supra,
at 658; see also Central Bank, supra, at 188. It also is
critical to achieving an efficient market. The corollary to
the principle that insider trading and other frauds have an
“inhibiting impact on market participation” is that inves-
tor confidence in strong federal regulation to prevent these
abuses inspires participation in the market. See O’Hagan,
supra, at 659. Widespread market participation in turn
facilitates efficient allocation of capital to the Nation’s
companies. See also Central Bank, supra, at 188.
                              C
  Mindful of the ends of both SLUSA and Rule 10b–5, the
Court’s precedents interpret the key phrase in both laws
to mean that a “misrepresentation or omission of a mate-
rial fact” is made “in connection with the purchase or sale”
of a security when the “fraud coincided with the sales [or
purchases] themselves.” Zandford, 535 U. S., at 820; see
also Dabit, supra, at 85.
8          CHADBOURNE & PARKE LLP v. TROICE

                    KENNEDY, J., dissenting

   This litigation is very similar to Zandford and satisfies
the coincides test it sets forth, and for similar reasons. In
Zandford, the SEC brought a civil action against a broker,
who, over a period of time, gained control of an investment
account, sold its securities, and then pocketed the pro-
ceeds. 535 U. S., at 815–816. The broker argued that “the
sales themselves were perfectly lawful and that the sub-
equent misappropriation of the proceeds, though fraud-
lent, is not properly viewed as having the requisite
connection with the sales.” Id., at 820. The Court rejected
that argument. Although the transactions were lawful
and separate from the misappropriations, the two were
“not independent events.” Ibid. Rather, the fraud “coin-
cided with the sales,” in part because the sales “fur-
ther[ed]” the fraud. Ibid.
   The Court likened the broker’s fraud to that in Superin-
tendent of Ins. of N. Y. v. Bankers Life & Casualty Co., 404
U. S. 6, 10 (1971), where the fraud victims were misled to
believe that they “would receive the proceeds of the
sale” of securities. Zandford, 535 U. S., at 821. Like the
victims in Bankers Life, the victims in Zandford “were
injured as investors through [the broker]’s deceptions”
because “[t]hey were duped into believing that [the broker]
would ‘conservatively invest’ their assets in the stock
market and that any transactions made on their behalf
would be for their benefit.” Id., at 822. Both suffered
losses because they were victims of dishonest intermediar-
ies or fiduciaries. See also In re Richard J. Line, 62
S.E.C. Docket 2879 (1996) (broker who induced parents to
transfer funds to him to invest in securities so as to tem-
porarily hide them during the college financial aid applica-
tion process, but then failed to return the money, violated
Rule 10b–5).
   Here, just as in Zandford, the victims parted with their
money based on a fraudster’s promise to invest it on their
behalf by purchases and sales in the securities markets.
                 Cite as: 571 U. S. ____ (2014)            9

                    KENNEDY, J., dissenting

The investors had—or were led to believe they could
have—the advantages of Stanford’s and SIB’s expertise
in investments in the national market. So here, as in
Zandford, the success of the fraud turned on the promise
to trade in regulated securities. According to the com-
plaints, SIB represented that it would “ ‘re-inves[t]’ ” the
plaintiffs’ money on their behalf in “a well-diversified
portfolio of highly marketable securities issued by stable
national governments, strong multinational companies,
and major international banks” to ensure a “safe, liquid,”
and above-market return. See App. 244, 249, 250, 253,
336, 342, 345, 444, 470, 480, 628. The misrepresentation
was about nationally traded securities and lent credence
to SIB’s promise that the CDs were a liquid investment
that “could be redeemed with just a few days’ notice.” See
id., at 253, 345, 445, 628. The CDs, SIB explained, would
be backed by nationally traded securities. As a result,
according to the complaints, the misrepresentation was
“material.” Id., at 244–245, 336–338, 480, 715. The fraud
could not have succeeded without the misrepresentation:
The investors gave SIB money because they expected it to
be invested in the national securities markets. The con-
nection between the promised purchases and the misrep-
resentation is more direct than in Zandford, because the
misrepresentation was essential to the fraud.
   Here, and again just as in Zandford, the fraud was not
complete until the representation about securities transac-
tions became untrue, just as Stanford intended all along.
Instead of purchasing covered securities, SIB purchased
some but fewer covered securities than it promised—only
10% of its portfolio, according to an affidavit attached to a
complaint—and primarily speculated in Caribbean real
estate. Brief for Respondents 37; App. 594; but see Tr. of
Oral Arg. 43–44 (suggesting SIB did not purchase securi-
ties). It was not until SIB rendered the CDs illiquid by
failing to make substantial investments in the nationally
10         CHADBOURNE & PARKE LLP v. TROICE

                    KENNEDY, J., dissenting

traded securities it promised that the fraud was consum-
mated. At that point, SIB blocked the plaintiffs’ access to
the market. The fraud and SIB’s failure to purchase all
that it promised were not independent events. Rather, the
false promises to invest in covered securities enabled and
furthered the CD fraud. Without the false promise, there
would have been no money to purchase the covered securi-
ties. On these facts, this Court’s controlling precedents
instruct that these misrepresentations were made “in con-
nection with the purchase or sale” of regulated securi-
ties; and, as a result, state-law claims concerning them
should be precluded.
   Dabit provides further support for this conclusion.
There, the Court held that an investment bank that de-
ceived brokers into advising their clients to hold covered
securities made misrepresentations “in connection with
the purchase or sale of a covered security.” “Under our
precedents,” the Court explained, “it is enough that the
fraud alleged ‘coincide’ with a securities transaction—
whether by the plaintiff or by someone else.” 547 U. S., at
85. It did not matter that the plaintiffs did not purchase
or sell securities, because they were participants in the
national markets: “The requisite showing, in other words,”
is “ ‘deception “in connection with the purchase or sale of
any security,” not deception of an identifiable purchaser or
seller.’ ” Ibid. (quoting O’Hagan, 521 U. S., at 658). Here,
for like reasons, it does not matter that the fraud victims,
as opposed to Stanford and SIB, were not the ones to fail
to invest in the market. The very essence of the fraud was
to induce purchase of the CDs on the (false) promise that
investors should rely on SIB’s special skills and expertise
in making market investments in covered securities on
their behalf. If promises related to covered securities are
integral to the fraud in this direct way, federal regula-
tion is necessary if confidence in the market is to be
maintained.
                  Cite as: 571 U. S. ____ (2014)           11

                    KENNEDY, J., dissenting

   That interest is at stake here. Because confidence in the
ability to act as an investor without diversion of funds by
intermediaries and insiders is critical, it does not matter if
the victim of a fraud does not purchase or sell a security,
Dabit, supra, at 85; or if the sale or purchase does not
occur at the same time as the deception, Bankers Life, 404
U. S., at 12–13; or if no party to the actual transaction is
deceived by the fraud, O’Hagan, supra, at 656; or if the
misrepresentation has nothing to do with the value of a
covered security, Zandford, 535 U. S., at 820. An inves-
tor’s confidence in the market, and willingness to partici-
pate in it, may be severely undermined if frauds like the
one here are not within the reach of federal regulation.
Frauds like this one undermine investor confidence in
attorneys, accountants, brokers, and investment advisers,
the intermediaries on whom investors depend to gain
access to the market. And when frauds are as widespread
as this one, the market as a whole is weakened because
investors, including sophisticated ones, are misled as to
the amount of funds committed to the market and its
consequent stability and resilience.
   The rule that SLUSA applies when a misrepresentation
about the market is coincident to the fraud is, then, essen-
tial to the framework of the Act and to federal securities
regulation. Fraudulent practices “ ‘constantly vary,’ ” and
“ ‘practices legitimate for some purposes may be turned to
illegitimate and fraudulent means.’ ” Bankers Life, supra,
at 12. That is why the key language “should be construed
not technically and restrictively, but flexibly to effectuate
its remedial purposes.” Zandford, supra, at 819 (internal
quotation marks omitted); see Affiliated Ute, 406 U. S., at
151. The language merits a “broad interpretation” be-
cause it is part of a residuary provision that must be able
to accommodate evolving methods of fraud by intermediar-
ies and insiders in ever more complicated securities mar-
kets. Central Bank, 511 U. S., at 174. Its interpretation
12           CHADBOURNE & PARKE LLP v. TROICE

                     KENNEDY, J., dissenting

should not privilege fraudsters who devise ever more
devious methods of committing fraud involving covered
securities.
   At the same time, the submitted interpretation is not so
broad as to “convert every common-law fraud that hap-
pens to involve securities into a violation of §10(b)” or
preclude all state tort claims that involve securities in a
tangential way. Zandford, supra, at 820. So, for example,
the statutory language does not extend to cover a thief
who steals money from a store to buy securities or to a
fraudster who defrauds a bank for a loan that he uses to
buy securities. See O’Hagan, supra, at 656. The victims
in those cases are not concerned about their ability to act
as investors but rather about their duties as a store clerk
or a loan officer. Those frauds involve securities transac-
tions only as happenstance. As a result, the interpretation
submitted in this dissent strikes the balance that Con-
gress intended between forbidding frauds by intermediar-
ies in the market without reaching frauds that touch the
markets in only tangential ways.
   The key question is whether the misrepresentation
coincides with the purchase or sale of a covered security
or the purchase or sale of the securities is what enables
the fraud. Stanford’s misrepresentation did so. Stanford
promised to purchase covered securities for investors,
using his special expertise, thus allowing investors to rely
on his skill to participate in the national securities mar-
kets. The entire scheme rested on investors falling for the
trick. When covered securities are so integral to the fraud,
the false promise is incident to the purchase or sale of
regulated securities because it coincides with it, and the
misrepresentation respecting national securities enabled
the fraud.
                              D
     The Court interprets the phrase “misrepresentation or
                  Cite as: 571 U. S. ____ (2014)            13

                     KENNEDY, J., dissenting

omission of a material fact in connection with the pur-
chase or sale of a covered security”—the key phrase in
SLUSA and Rule 10b–5—in a different manner. The
result, it is submitted, is inconsistent with the statutory
scheme Congress enacted and casts doubt on the applica-
bility of federal securities law to cases of serious securities
fraud.
   The Court construes the text of SLUSA and Rule 10b–5
to require a misrepresentation that “is material to a deci-
sion by one or more individuals (other than the fraudster)
to buy or sell a ‘covered security.’ ” Ante, at 8. The Act
simply does not say that the purchase or sale—or the
promise to make a purchase or sale—must be by one other
than the fraudster. Rather the Act states that there must
be “a misrepresentation or omission of a material fact in
connection with the purchase or sale of a covered secu-
rity.” 15 U. S. C. §78bb(f)(1)(A). See 17 CFR §240.10b–5
(2013) (requiring an “untrue statement of a material fact”
“in connection with the purchase or sale of any security”).
The Court narrows the statute Congress wrote in two
ways. It excises the important “in connection with” lan-
guage, resulting in a confined reading inconsistent with
the Act’s purpose, structure, and operation. And, by re-
quiring the purchase or sale be made by someone “other
than the fraudster,” the Court inserts a limiting phrase
that nowhere appears in the language of the provisions.
In litigation like this, this new rule has it upside down.
When the violation that adversely affects the securities
market is done by the fraudster himself, that is all the
more reason for applying federal law. This is not a case
where Congress has limited its coverage to a certain sub-
set of purchasers. Congress enacted such a limit two
subsections later in SLUSA when detailing which ac-
tions are not precluded. See 15 U. S. C. §78bb(f)(3)(A)(ii)(I)
(“the purchase or sale of securities by the issuer or an
affiliate of the issuer exclusively from or to holders of
14          CHADBOURNE & PARKE LLP v. TROICE

                     KENNEDY, J., dissenting

equity securities of the issuer”). But it did not do so in the
provision at issue.
   The Court’s reconstruction of the language of the provi-
sions also casts doubt on the applicability of federal securi-
ties law to three established instances of federal securities
fraud and one instance of preclusion under the Act as
adjudged by the Court and the SEC in earlier cases.
   First, the Court’s interpretation necessarily suggests
that Zandford is incorrect and that dishonest brokers need
not fear Rule 10b–5 liability. The deceit in Zandford was
that the broker would act as the victim’s fiduciary when in
fact he planned on selling (and did sell) the investor’s
securities for his own benefit. 535 U. S., at 820; see also
Line, 62 S.E.C. Docket 2879 (broker’s deceit was false
promise to buy). The Court’s rule that liability must rest
on a finding that someone other than the fraudster pur-
chased or sold securities is inconsistent with Zandford,
where the recipient of the misrepresentation did not buy
or sell. The Court’s opinion disregards the hazards to the
market when the fraudster is the one acting in the market
and frustrates the investment objectives of his victims.
   Second, the Court’s interpretation is difficult to reconcile
with liability for insider trading. In O’Hagan, the Court
held that the “in connection with” element “is satisfied
because the fiduciary’s fraud is consummated, not when
the fiduciary gains the confidential information, but when,
without disclosure to his principal, he uses the infor-
mation to purchase or sell securities,” “even though the
person or entity defrauded is not the other party to the
trade.” 521 U. S., at 656. The Court’s requirement that
someone other than the fraudster purchase or sell a secu-
rity is hard to square with O’Hagan.
   Third, the Court’s interpretation is difficult to square
with the SEC’s position in In re Orlando Joseph Jett, 82
S.E.C. Docket 1211 (2004). There, the SEC held liable a
trader who fabricated complex trades to supplement the
                  Cite as: 571 U. S. ____ (2014)           15

                    KENNEDY, J., dissenting

returns of his real trades, so as to increase his standing
in his company. The SEC likened Jett to “garden-variety
securities fraud cases in which a broker-dealer or invest-
ment adviser engages in unsuccessful securities trades for
a client and then hides the losses or inflates the profits by
sending out false account statements.” Id., at 1253. The
decision of the Court today would require that Jett’s mis-
representation led to the purchase or sale of securities by
someone other than Jett. But the SEC found Jett’s own
purchases and sales to be sufficient to come within the
securities laws.
    Finally, the Court’s analysis is inconsistent with the
unanimous opinion in Dabit, which interpreted the same
statutory language at issue in this litigation. Dabit
squarely rejected the view that “an alleged fraud is ‘in
connection with’ a purchase or sale of securities only when
the plaintiff himself was defrauded into purchasing or
selling particular securities.” 547 U. S., at 85. Instead,
it approved the SEC’s interpretation that a broker who
“ ‘sells customer securities with intent to misappropriate
the proceeds’ ” satisfies the “in connection with the pur-
chase or sale” requirement. Ibid., n. 10. Dabit cannot be
reconciled with today’s decision to require someone other
than the fraudster buy or sell a security.
    It is correct that there is no case precisely standing for
the proposition that a victim does not have to take an
ownership position. However, O’Hagan supports that
view. O’Hagan clearly states that in insider trading cases
“the person or entity defrauded is not the other party to
the trade.” 521 U. S., at 656. And in Zandford a fraudster
told customers he would invest “their money” in securities
and then sold those securities. 535 U. S., at 815. Here the
fraudster told plaintiffs that he would “re-invest” “their”
money in securities and then bought different securities.
App. 250, 470, 715. The only difference is that there the
fraudster sold and here he bought. Federal regulation
16         CHADBOURNE & PARKE LLP v. TROICE

                    KENNEDY, J., dissenting

should not turn on whether a fraudster arrives before or
after an investor makes his first purchase.
                              II
   The Court’s interpretation also introduces confusion into
securities law by not defining what it means for someone
“other than the fraudster to buy or sell” a security, a rule
that it derives from its view that the precedents all involve
victims who had an ownership interest in securities. Ante,
at 8–10. The precedents the Court cites involve what the
parties have called direct ownership, where the victim
buys or sells an entire equity. By using the term owner-
ship interest instead of ownership, the Court also appears
to accept the respondents’ concession that indirect owner-
ship, where the victim buys or sells shares in a defendant
fund that itself owns equities, is sufficient in certain cir-
cumstances, such as when a victim has “some interest in
the defendant’s supposed portfolio.” Brief for Respondents
16.
   An ownership rule distinguishing between different
types of indirect ownership is unworkable. Indirect own-
ership is a common type of investment. See M. Fink, The
Rise of Mutual Funds 1 (2008) (U. S. mutual funds have
over 88 million American shareholders and over $11 tril-
lion in assets). Yet whether indirect ownership involves
an interest in the underlying equities is a complex ques-
tion of corporation, LLC, or partnership law. See In re
Bernard L. Madoff Inv. Securities LLC, 708 F. 3d 422, 427
(CA2 2013). Congress likely did not intend preclusion of
state-law suits to depend on the complexities of the Dela-
ware Code.
   The Court’s ownership approach also casts doubt on the
scope of Rule 10b–5. Under the Court’s interpretation,
§10(b) applies to fraudulent mutual or hedge funds not
because those funds invest in securities but because in-
vestments in the funds are securities. But not all such
                 Cite as: 571 U. S. ____ (2014)          17

                   KENNEDY, J., dissenting

investments are securities. 2 L. Ribstein & R. Keatinge,
Limited Liability Companies §14:2 (2010) (discussing test
for a security from SEC v. W. J. Howey Co., 328 U. S. 293
(1946)); 1 H. Bloomenthal & S. Wolff, Securities Law
Handbook §§2:3 to 2:4 (2010). For those that are not, the
Court seems to envision liability only when the investment
confers an ownership interest in the fund’s securities. And
the general rule for investments in funds organized as
LLPs and LLCs is that they do not convey such claims.
1 Ribstein & Keatinge, supra, §7:11; see In re Herald, 730
F. 3d 112 (CA2 2013). As a result, in important instances
Rule 10b–5 may not extend to mutual and hedge funds
under the Court’s interpretation.
  It is true that the SEC pursued the fraudster with suc-
cess here. But that is because the CDs are securities. See
Order Denying Motion to Dismiss in SEC v. Stanford
International Bank, No. 3–09–CV–0298–N (ND Tex., Nov.
30, 2011), pp. 5–10. This aspect of Stanford’s fraud is not
a necessary feature of all frauds involving funds similar
to SIB.
                             III
  The fraudster in this litigation misrepresented that he
would purchase nationally traded securities. That mis-
representation was made “in connection with the purchase
or sale” of the promised securities because it coincided
with them. The fraud turned on the misrepresentation.
The Court’s contrary interpretation excises the phrase “in
connection with” from the Act, a phrase that the Court in
earlier cases held to require a broad and flexible meaning.
At the same time, by holding that the purchase or sale of
securities be made by someone other than the fraudster,
the Court engrafts a limitation that does not appear in the
text. The result is to constrict the application of federal
securities regulation in instances where dishonest brokers,
insider traders, and lying employees purchase or sell
18         CHADBOURNE & PARKE LLP v. TROICE

                   KENNEDY, J., dissenting

securities, or promise to do so, as part of the fraud. To-
day’s decision introduces confusion in the enforcement of
securities laws.
  For these reasons, it is submitted that the judgment of
the Court of Appeals should be reversed.