Securities and Exchange Commission v. Zandford

PETITIONER: Securities and Exchange Commission
RESPONDENT: Zandford
LOCATION: The Cleveland Metropolitan School District

DOCKET NO.: 01-147
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Fourth Circuit

CITATION: 535 US 813 (2002)
ARGUED: Mar 18, 2002
DECIDED: Jun 03, 2002

ADVOCATES:
Matthew D. Roberts - Agued the cause for the petitioner
Steven H. Goldblatt - Argued the cause for the respondent

Facts of the case

In 1987, Charles Zandford, a securities broker, persuaded William Wood to open a joint investment account for himself and his mentally retarded daughter. The Woods gave Zandford discretion to manage the account and a general power of attorney to engage in securities transactions without their prior approval. After Wood died, all of the money that he had invested was gone. Subsequently, Zandford was indicted on federal wire fraud charges for selling securities in the Woods' account and making personal use of the proceeds. The Securities and Exchange Commission (SEC) also filed a civil complaint, alleging that Zandford had violated section 10 of the Securities Exchange Act of 1934 and the SEC's Rule 10b-5 by engaging in a scheme to defraud the Woods and misappropriating their securities without their knowledge or consent. After Zandford's conviction in the criminal case, the District Court granted the SEC summary judgment in the civil case. In reversing, the Court of Appeals directed the District Court to dismiss the complaint, holding that neither the criminal conviction nor the allegations in the complaint established that Zandford's fraud was in connection with the purchase or sale of any security.

Question

Is the alleged fraudulent conduct of a securities broker, who sells his customer's securities and using the proceeds for his own benefit without the customer's knowledge or consent, in connection with the purchase or sale of any security within the meaning of the Securities Exchange Act of 1934 and SEC Rule 10b-5?

Media for Securities and Exchange Commission v. Zandford

Audio Transcription for Oral Argument - March 18, 2002 in Securities and Exchange Commission v. Zandford

Audio Transcription for Opinion Announcement - June 03, 2002 in Securities and Exchange Commission v. Zandford

The opinion of the court in No. 01-147, Securities and Exchange Commission versus Zandford will be announced by Justice Stevens.

John Paul Stevens:

This case comes to us from the Court of Appeals for the Fourth Circuit.

The Securities and Exchange Commission filed a civil complaint alleging that a stock broker violated section 10(b) of the 1934 act by selling his customer’s securities and using the proceeds for his won benefit without the customer’s knowledge or consent.

The question that is presented to us is whether the alleged fraudulent conduct was “in connection with the purchase or sale of any security” within the meaning of the statute and the implementing Rule 10b-5.

In the view of the Court of Appeals for the Fourth Circuit, the sales of securities were incidental to a scheme that was simply to steal his customer’s assets rather than to engage in manipulation of a particular security.

For reason stated in an 11 page opinion filed with the Clerk at the Court, we disagree and we reverse the Court of Appeals, and our decision is unanimous.