Superintendent of Ins. of N. Y. v. Bankers Life & Casualty Co.

PETITIONER: Superintendent of Ins. of N. Y.
RESPONDENT: Bankers Life & Casualty Co.
LOCATION: Georgia State Capitol

DOCKET NO.: 70-60
DECIDED BY: Burger Court (1971-1972)
LOWER COURT: United States Court of Appeals for the Second Circuit

CITATION: 404 US 6 (1971)
ARGUED: Oct 13, 1971
DECIDED: Nov 08, 1971

Arnold Bauman - for petitioner
Irving Parker - for respondent Bankers Life and Cas
William W. Karatz - for respondent Irving Trust Co
Walter P. North - for the Securities and Exchange Comm., as amicus curiae, by special leave of Court

Facts of the case


Media for Superintendent of Ins. of N. Y. v. Bankers Life & Casualty Co.

Audio Transcription for Oral Argument - October 13, 1971 in Superintendent of Ins. of N. Y. v. Bankers Life & Casualty Co.

Warren E. Burger:

We will hear arguments next in number 60, Superintendent of Insurance of the State of New York against the Bankers Life and Casualty.

Mr. Bauman, you may proceed whenever you are ready.

Arnold Bauman:

Mr. Chief Justice and may it please the Court.

This case appears in this Court as a result of a grant of certiorari to review the affirmance of judgments by the Second Circuit Court of Appeals which affirmed a motion of the District Court, dismissing the complaint in this case, on the basis that the complaint did not present an instance of Federal jurisdiction under Rule 17 of the Security Act of 1933 or Rule 10 and, I beg your pardon, Section 10 and Rule 10 (b) 5 of the Security Act of 1934.

As I am certain, the Court is aware, I shall say, merely very briefly that Section 17 (a) of the 1933 Act deals with the usage of interstate facilities of interstate commerce in connection with the stock frauds involved in the purchase of securities.

Section 10 (b) which is reproduced at page 3 of our brief as well as Rule 10 (b) (5) was later passed, a year later, and I respectfully urge upon the Court that it was passed to cover the loopholes, to make up for the loopholes which Congress left when it passed Section 17 (a) of the 1933 Act.

Now, I should like merely to refer to one part of Section 10 (b) because it is at the crux and at the center of the argument that I intend to make.

Section 10 of course states that “it shall be unlawful for anyone by use of means of interstate commerce to use or employ any deceptive device,” and of course I am leaving up irrelevant words, “in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or,” or and I shall come to the reason for that emphasis, “for the protection of investors.”

I think I can say now before I discuss the facts with the Court that the reason I stressed the “or” in Rule 10 (b) (5) is because I respectfully submit that the Court below, both Courts below, Judge Herlings (ph) in the District Court and the United States Court of Appeals for the Second Circuit, both tended to read the protection, the words “in the public interest” as synonymous with the “protection of investors.”

And I respectfully submit to this Court that when rule was promulgated, the exchange had in mind, I beg your pardon, when that Section was passed, the Congress had in mind a different test for that which is alleged to have been in the public interest from that which is necessary for the protection of investors.

William J. Brennan, Jr.:

Mr. Bowman.

Arnold Bauman:

Yes sir?

William J. Brennan, Jr.:

It is a term a issue in this case, in connection with the purchase of (Inaudible)

Arnold Bauman:

Your honor, I was just this moment coming to that.

I was about to say that Rule 10 (b) (5) presents or gives rise to the second or another one of the issues in this case, in that it in effect paraphrases Section 17 (a), but then adds as Mr. Justice Brennan has called to my attention, in his very last words, that it prohibits unlawful actions in connection with the purchase or sale of any security.

Now, the Court of Appeals and I should like to use part of my time to discuss the facts with the Court because I think they are very important in this case, but in order to put it in focus, I would like to submit that the Court of Appeals felt that where a securities transaction is pure in itself, in other words, securities worth X dollars are sold for X dollars, even though that is part of an -- and an integral part, indeed a -- an absolutely necessary part of an overall fraudulent scheme to fact that neither the securities transaction was impure nor were the processes of a marketplace, solely to use the words of the opinion below, that in such a case as long as the -- as the securities transaction is pure, the Court below felt that it was not “in connection with a securities transaction.”

Now, with the Court's permission I should like to address myself to the facts of this case because as I say in my view they are -- they are that important.

I should say at the very first that I appear as a representative of the Superintendent of Insurances of the State of New York who as a result of the transactions which I am about to relate was appointed liquidator of Manhattan Casualty Company, a New York Insurance Company and of course the liquidator was appointed by the Supreme Court of the State of New York and functions under an order of such appointment.

Until January 24, 1962, Bankers Life was the sole stockholder of Manhattan Casualty Corporation.

On that day Bankers sold its Manhattan stock to a group consisting of a man named Bourne and another man named Begole, who had no money at all as will come out in a moment, for five million dollars.

It had previously been arranged with the Irving Trust Company that at the closing of this Manhattan Stock, Irving would appear with the check for five million dollars and at the closing, at the sale from Bankers Life to Bourne and Begole, a representative, an officer of Irving Trust did in fact appear with a check made up in the sum of five million dollars payable to Bankers Life.

This was delivered at the -- at the closing. I should point out that in this point of time and indeed to the best of my knowledge, until after the close of business on January 24th, 1962, Manhattan casualty had no account to them, nonetheless, Irving did issue this check of five million to Bankers Life obviously to pay for the stock which was being transferred.

Shortly after the closing of the stock, a new Board was elected and the Board convened.


Arnold Bauman:

Yes sir, and the Board convened.

It was represented, and I believe the record best indicates that it was represented at that meeting by the Chairman of the Board, new Board of Manhattan, the man Begole whom I previously made reference as a purchaser that Manhattan's portfolio of Government Securities, US Government Bonds and Securities totaling some $4,854,000.00 was an undesirable investment from the point of view of the corporation and recommended to the Board of Directors that in order to bet at the corporate position, these bonds should be sold and the money invested in a certificate of deposit.

The Board of Directors, believing that the sale of its portfolio of Government Securities totaling almost some five million dollars was so going to be altered, voted a resolution relying on the misrepresentations of the Chairman, authorizing the sale of the portfolio of Manhattan's government funds.

They were rapidly sold.

Byron R. White:

Is this, how were they sold, did they use some (Inaudible)

Arnold Bauman:

I am not -- they were sold to the Second District Securities and I am not certain whether or not in that sale an instrumentality of the stock exchange was used, I do not believe so Mr. Justice White.