Superintendent of Insurance of New York v. Bankers Life and Casualty Company

United States Supreme Court

404 U.S. 6

Superintendent of Insurance of New York  v.  Bankers Life and Casualty Company, et al.

Certiorari to the United States Court of Appeals for the Second Circuit

No. 70-60  Argued: Oct. 13, 1971 --- Decided: Nov 8, 1971

Petitioner, liquidator of Manhattan Casualty Co., alleged that the company was defrauded, in violation of federal securities laws, by a fraudulent sale of securities owned by it. Manhattan's sole stockholder agreed to sell all of its Manhattan stock to one Begole for $5 million. Begole conspired with others to use United States Treasury bonds owned by Manhattan to pay for the shares. Through a deceptive device the bonds were sold and the proceeds used in the purchase of the stock. The depletion of Manhattan's assets was concealed by the purported transfer to it, in exchange for the proceeds of the bond sale, of a certificate of deposit which in fact had been assigned by Manhattan's new president, a co-conspirator, to another corporation and by it used as collateral for a loan. The District Court dismissed the complaint and the Court of Appeals affirmed, finding that "no investor [was] injured" and that the "purity of the security transaction and the purity of the trading process were unsullied."

Held: Section 10 (b) of the Securities Exchange Act of 1934 makes it unlawful to use "in connection with the purchase or sale" of any security "any manipulative device or deceptive device or contrivance" in contravention of the Securities and Exchange Commission's rules and regulations. Section 10 (b) prohibits the use of any deceptive device in the "sale" of any security by "any person," and it is irrelevant that Manhattan was a corporation rather than an individual investor; that the fraud was perpetrated by a corporate officer and his outside collaborators; that the transaction was not conducted through a securities exchange or an organized market; that the proceeds due the seller were misappropriated; and that the creditors of the defrauded corporate seller may be the ultimate victims. Pp. 9-14.

430 F. 2d 355, reversed.

DOUGLAS, J., delivered the opinion for a unanimous Court.

Arnold Bauman argued the cause for petitioner. With him on the briefs was Morton J. Schlossberg.

William W. Karatz argued the cause and filed a brief for respondent Irving Trust Co. Irving Parker argued the cause for respondent Bankers Life & Casualty Co. With him on the brief were William T. Kirby and Isaac M. Bayda. William E. Willis and Michael M. Maney filed a brief for respondents Belgian-American Banking Corp. et al. William Heller filed a brief for respondents Garvin, Bartel & Co. et al.

Walter P. North argued the cause for the Securities and Exchange Commission as amicus curiae urging reversal. With him on the brief were Solicitor General Griswold, Peter L. Strauss, Philip A. Loomis, Jr., and Theodore Sonde.

Notes