Re: 6/3/02 - Reuters: Court Upholds SEC Power to Sue Brokers
Court Upholds SEC Power to Sue Brokers
Monday, June 03, 2002 10:50 a.m. EDT
WASHINGTON (Reuters) - A unanimous U.S. Supreme Court on Monday upheld the Securities and Exchange Commission's power to sue brokers to recover investors' money when the brokers sell their clients' stock for personal gain.
The high court ruling overturned a decision the agency said would have seriously undermined its ability to protect investors against fraudulent actions by a stockbroker.
The case involved Charles Zandford, a former broker in Bethesda, Maryland, who opened an account in 1987 for William Wood and his mentally retarded daughter with $419,255 to invest at Zandford's discretion.
Three years later, the money was gone after Zandford repeatedly sold securities in the Woods' account and transferred the proceeds to accounts he owned or controlled.
A federal jury in Maryland found Zandford guilty on 13 counts of wire fraud and sentenced him to 52 months in prison.
The SEC brought a civil action against Zandford in 1995 alleging he issued checks to himself from money drawn from the Woods' account. The SEC said Zandford's wire fraud conviction was enough to show he had violated securities rules.
A U.S. appeals court disagreed, ruling that Zandford was found guilty of wire fraud, but that it was not in connection with selling or buying securities.
Justice John Paul Stevens said in the high court's opinion that the appeals court was wrong.
He said that neither the SEC nor the Supreme Court has ever held there must be a misrepresentation about a particular security's value to run afoul of the law.
Stevens said the law, which was designed to ensure an honest securities market and to promote investor confidence after the 1929 market crash, should be construed flexibly, not technically and restrictively.
Concerning the specific allegations against Zandford, his conduct was "in connection with the purchase or sale" of a security under the meaning of the law, Stevens concluded.
Copyright © 2002 Reuters Limited.
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