The Oyez Project: Economic Activity Issues - Securities

Aaron v. SEC

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Basic Inc. v. Levinson

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Blau v. Lehman

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Blue Chip Stamps v. Manor Drug Stores

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Board Of Govs., Frs v. Investment Company Inst.

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Burks v. Lasker

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Central Bank Of Denver, N. A. v. First Interstate Bank Of Denver, N. A.

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Chiarella v. United States

Petitioner Vincent Chiarella worked in the composing room of Pandick Press (Pandick), a financial printer. An acquiring corporation hired Pandick to produce announcements of corporate takeover bids. Although the identities of the acquiring and target corporations were concealed, Chiarella was able to deduce the names of the target companies. Without disclosing his knowledge, Chiarella purchased stock in the target companies and sold the shares immediately after the takeover bids were made public. Chiarella realized slightly more than $30,000 in profits from his trading activities. The Securities and Exchange Commission (SEC) then investigated Chiarella's trading activities. Chiarella entered into a consent decree with the SEC in which he agreed to return the profits he made to the sellers of the shares. A few months later, Chiarella was indicted on seventeen counts of violating Section 10(b) of the Securities Exchange Act of 1934 (1934 Act) and SEC Rule 10b-5. Section 10(b) of the 1934 Act prohibits the use "in connection with the purchase or sale of any security" of "any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [SEC] may prescribe." Rule 10b-5, promulgated under Section 10(b), makes it unlawful for any person to "employ any device, scheme, or artifice to defraud . . . in connection with the purchase or sale of any security." Chiarella was convicted at trial and the Court of Appeals for the Second Circuit affirmed his conviction.

Clarke v. Securities Industry Assn.

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Daily Income Fund, Inc. v. Fox

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Dirks v. Securities and Exchange Commission (SEC)

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Dunn v. Commodity Futures Trading Commission

The Commodity Futures Trading Commission (CFTC) brought an action against William C. Dunn and Delta Consultants, Inc. claiming that they had solicited investments in and operated a fraudulent scheme involving transactions in foreign currency options in violation of the Commodity Exchange Act (CEA) and CFTC regulations. Dunn and Delta Consultants allegedly engaged in the transactions by contracting directly with international banks, rather than using a regulated exchange or board of trade. This is known as "off exchange" trading. Dunn, Delta Consultants, and their customers suffered heavy losses. The District Court appointed a temporary receiver to take control of Dunn and Delta Consultants' property. The court rejecting their defense that the transactions were exempt from the CEA under the "Treasury Amendment," which excepts "transactions in foreign currency" unless they involve a sale "for future delivery" "conducted on a board of trade." The Court of Appeals affirmed.

Dura Pharmaceuticals, Inc. v. Broudo

Michael Broudo and a group of shareholders sued Dura Pharmaceuticals under the Securities and Exchange Act after the price of the company's stock dropped sharply. The shareholders alleged the company's misleading statements about its antibiotic sales and about the possibility of FDA approval of an asthma device caused the price drop. The district court ruled the investors failed to prove "loss causation" because they could not prove a causal connection between the alleged fraud and the drop in price. The Ninth Circuit Court of Appeals reversed and ruled the investors proved loss causation because they proved the stock price on the date of purchase was inflated because of misrepresentation.

Ernst & Ernst v. Hochfelder

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F. T. C. v. Travelers Health Assn.

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Foremost-Mckesson v. Provident Securities

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Gould v. Ruefenacht

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Gustafson v. Alloyd Co., Inc., Fka Alloyd Holdings, Inc.

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Herman & Maclean v. Huddleston

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J. I. Case Co. v. Borak

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Kamen v. Kemper Financial Services, Inc.

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Kern County Land Co. v. Occidental Corp.

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Lampf v. Gilbertson

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Landreth Timber Co. v. Landreth

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Marine Bank v. Weaver

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Merrill Lynch, Pierce, Fenner & Smith v. Ware

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Musick, Peeler & Garrett v. Employers Insurance Of Wausau

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Pinter v. Dahl

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Piper v. Chris-Craft Industries

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Randall v. Loftsgaarden

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Reliance Electric Co. v. Emerson Electric Co.

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Reves v. Ernst & Young

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Rodriguez De Quijas v. Shearson/Am. Exp.

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Rondeau v. Mosinee Paper Corp.

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S. E. C. v. Capital Gains Bureau

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S. E. C. v. Variable Annuity Co.

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Santa Fe Industries, Inc. v. Green

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SEC v. Edwards

Charles Edwards founded a company that sold pay telephones and then leased them back from the purchasers for a fixed monthly fee. After Edwards filed for bankruptcy, the Securities and Exchange Commission (SEC) sued him for selling securities (considering the telephones to be investments on the part of the purchasers and therefore securities) in violation of the registration and anti-fraud provisions of the federal securities laws.

A federal district court froze Edwards' assets in a preliminary injunction. The 11th Circuit Court of Appeals overruled the district court's injunction for lack of jurisdiction. The SEC, the court reasoned, failed to show that Edwards' selling pay telephones was an "investment contract" under federal securities laws. In defining "investment contract," the court used the Supreme Court's ruling in SEC v. W.J. Howey Co. (1946), that a financial interest is an "investment contract" if it involves (1) an investment of money, (2) in a common enterprise, (3) with the expectation of profits to be derived solely from the efforts of others. The 11th Circuit ruled that the SEC could not meet the test's third part because the purchasers received a fixed fee that was guaranteed by contract and therefore not dependant on Edwards' success.

SEC v. National Securities, Inc.

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SEC v. O'Brien

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SEC v. Sloan

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SEC v. United Benefit Life Ins. Co.

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SEC v. Zandford

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.

Securities Industry Assn. v. Board Of Governors

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Securities Industry Assn. v. Board Of Governors

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Securities Investor Protection v. Barbour

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Steadman v. SEC

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Supt. Of Insurance v. Bankers Life & Cas. Co.

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Tcherepnin v. Knight

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Teamsters v. Daniel

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Touche Ross & Co. v. Redington

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Transamerica Mortgage Advisors, Inc. v. Lewis

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Tsc Industries, Inc. v. Northway, Inc.

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United Housing Foundation, Inc. v. Forman

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United States v. Naftalin

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United States v. O'hagan

The Securities and Exchange Commission (SEC) found James O'Hagan, a partner at Dorsey and Whitney law firm (Dorsey), guilty of 57 counts of fraud for profiting from stock options in Pillsbury Company based on nonpublic information he misappropriated for his personal benefit. O'Hagan knew that Dorsey's client, Grand Metropolitan PLC, was considering placing a tender offer (a public offer to pay shareholders a premium for their stock at a specified time) to acquire a majority share in Pillsbury Company. O'Hagan bought a large number of stock options without telling his firm and later sold his options for a $4.3 million profit.

The U.S. Court of Appeals for the Eighth Circuit reversed O'Hagan's convictions under the Securities Exchange Act of 1934. The Eighth Circuit applied the Act only to security-traders who wrongfully use confidential information pertaining to their own companies. The Circuit Court ruled that the SEC had exceeded the rule-making authority granted to it by the Act by making it a fraudulent action to trade securities on exclusive non-public foreknowledge of a tender offer.

Virginia Bankshares, Inc. v. Sandberg

First American Bankshares, Inc. (FABI) began a "freeze-out" merger in which the First American Bank of Virginia (Bank) merged into Virginia Bankshares, Inc. (VBI), a wholly owned subsidiary of FABI. VBI already owned 85% of the Bank's shares, and would acquire the remaining 15% from the Bank's minority shareholders. The Bank's executive committee and full board approved the merger at $42 a share. The directors then solicited proxies for voting on the proposed merger at the next annual meeting. In their solicitation, the directors stated that they approved the plan because the price allowed the minority shareholders to achieve a "high" value for their stock. Sandberg did not give her approval of the merger and brought suit, the federal ground for which was soliciting proxies in violation of SEC Rule 14a-9, which prohibits the solicitation of proxies by means of materially false or misleading statements. The trial court instructed the jury that it could find for Sandberg as long as the proxy solicitation involved material misstatements, and the proxy solicitation was an "essential link" in the merger process. The jury found for Sandberg, awarding her $18 a share, finding that she would have received that much more if the stock had been valued adequately.

Wharf Holdings Ltd. v. United International Holdings

In return for United International Holdings, Inc.'s assistance in preparing its application, contracts, system, and financing for a cable television system in Hong Kong, Wharf Holdings Ltd. orally granted United an option to buy 10% of stock in the system. The parties never reduced the agreement to writing. Ultimately, Wharf refused to allow United to exercise its option. United then sued Wharf in Federal District Court, claiming that Wharf violated the Securities Exchange Act of 1934, which prohibits using "any manipulative or deceptive device or contrivance...in connection with the purchase or sale of any security." Wharf's internal documents, which suggested that Wharf never intended to carry out its promise, supported United's claim. A jury found in United's favor. The Court of Appeals affirmed.

Wilko v. Swan

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