Thursday, November 7, 2013

SEC v. Zandford case brief

SEC v. Zandford case brief summary
535 U.S. 813 (2002)

Petitioner Securities and Exchange Commission (SEC) sued respondent stockbroker, alleging securities fraud. The United States Court of Appeals for the Fourth Circuit reversed the grant of summary judgment to the SEC and directed the complaint to be dismissed. The United States Supreme Court granted the SEC's petition for a writ of certiorari to determine whether the fraud was connected with the purchase or sale of a security.

The SEC alleged that the stockbroker violated both § 10(b) of the Securities Exchange Act of 1934 (§ 10(b)), codified at 15 U.S.C.S. § 78j(b), and the SEC's Rule 10b-5, 17 C.F.R. § 240.10b-5 (2000), by selling his customer's securities and using the proceeds for his own benefit without the customer's knowledge or consent. The stockbroker argued that his fraud lacked the requisite connection with the purchase or sale of a security.

  • The Supreme Court determined that the allegations of the complaint, if true, entitled the SEC to relief and that the appellate court should not have directed that the complaint be dismissed. 
  • The breaches of fiduciary duty were "in connection with" securities sales within the meaning of § 10(b)because the securities transactions and breaches of fiduciary duty coincided. 
  • The securities sales and the stockbroker's fraudulent practices were not independent events. 
  • The stockbroker's fraud coincided with the sales themselves, and each sale was made to further respondent's fraudulent scheme.


The judgment of the appellate court was reversed, and the case was remanded.

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

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