SEC v. Capital Gains Research Bureau, Inc. case brief

SEC v. Capital Gains Research Bureau, Inc. case brief summary
375 U.S. 180 (1963)

CASE SYNOPSIS

Petitioner, the Security and Exchange Commission, challenged a decision from the United States Court of Appeals for the Second Circuit denying it a preliminary injunction under the Investment Advisers Act of 1940, 15 U.S.C.S. § 80b-1 et seq., to require respondents, registered investment advisors, to disclose in their future investment advisory reports their practice of scalping.

CASE FACTS
Respondent registered investment advisers published investment reports. Respondents would purchase shares of stock for their own account and then recommend the stocks in the report. The market price of the stocks would rise, and respondents would then sell their shares. Pursuant to the Investment Advisers Act of 1940, 15 U.S.C.S. § 80b-1 et seq., petitioner sought an injunction requiring respondents to disclose this practice in their reports. The court of appeals affirmed the denial of injunctive relief because there was no evidence that respondents intended to injure their clients.


DISCUSSION

• The Court reversed the judgment and remanded the action because the practice operated as fraud on the client within the meaning of the Act. 
• The Act was given a broad remedial construction so that intent to injure was not needed to establish fraud. 
• Failure to disclose material facts was fraudulent, and the showing of deliberate dishonesty was not required.

CONCLUSION

The Court reversed and remanded the action.

Suggested Study Aids For Securities Regulation Law
Securities Regulation in a Nutshell, 10th (Nutshell Series)
Securities Regulation: Examples & Explanations, 5th Edition
Securities Regulations: The Essentials