Aaron v. SEC - 446 U.S. 680 (1980)
U.S. Supreme Court
Aaron v. SEC, 446 U.S. 680 (1980)
Aaron v. SEC
Argued February 25, 1980
Decided June 2, 1980
446 U.S. 680
Section 17(a) of the Securities Act of 1933 (1933 Act) makes it unlawful for any person in the offer or sale of any security "(1) to employ any device, scheme, or artifice to defraud, or (2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact . . or (3) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser." Section 10(b) of the Securities Exchange Act of 1934 (1934 Act) makes it unlawful to use, in connection with the purchase or sale of any security, "any manipulative or deceptive device or contrivance" in violation of such regulations as the Securities and Exchange Commission (SEC) may prescribe, and Rule 10b-5 was promulgated to implement this section. Section 20(b) of the 1933 Act and § 21(d) of the 1934 Act authorize the SEC to seek injunctive relief against violations of the respective Acts, and further provide that, "upon a proper showing," a district court shall grant the injunction. Pursuant to §§ 20(b) and 21(d), the SEC filed a complaint in a District Court against petitioner, a managerial employee of a broker-dealer, alleging that he had violated, and aided and abetted violations of, § 17(a) of the 1933 Act, § 10(b) of the 1934 Act, and SEC Rule 10b, in connection with his firm's sales campaign for certain securities. Concluding that there was scienter on petitioner's part, the District Court found that he had committed and aided and abetted the violations as alleged. The Court of Appeals affirmed, declining to decide whether petitioner's conduct would support a finding of scienter and holding instead that, when the SEC is seeking injunctive relief, proof of negligence alone will suffice.
Held: The SEC is required to establish scienter as an element of a civil enforcement action to enjoin violations of § 10(b) of the 1934 Act, Rule 105, and § 17(a)(1) of the 1933 Act, but need not establish scienter as an element of an action to enjoin violations of §§ 17(a)(2) and 17(a)(3) of the 1933 Act. Pp. 446 U. S. 687-702.
(a) Scienter is an element of violations of § 10(b) and Rule 10b-5, regardless of the identity of the plaintiff or the nature of the relief
sought. Ernst & Ernst v. Hochfelder, 425 U. S. 185. Section 10(b)'s language, particularly t.he terms "manipulative," "device," and "contrivance," clearly refer to "knowing and intentional misconduct," and the section's legislative history also points toward a scienter requirement. SEC v. Capital Gains Research Bureau, 375 U. S. 180, distinguished. Pp. 446 U. S. 689-695.
(b) Section 17(a)(1)'s language, "to employ any device, scheme, or artifice to defraud," plainly evinces an intent on Congress' part to proscribe only knowing or intentional misconduct. By contrast, § 17(a)(2)'s language, "by means of any untrue statement of a material fact or any omission to state a material fact," is devoid of any suggestion of a scienter requirement. And § 17(a)(3)'s language, "to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit," plainly focuses upon the effect of particular conduct on members of the investing public, rather than upon the culpability of the person responsible. Cf. SEC v. Capital Gains Research Bureau, supra. There is nothing in § 17(a)'s legislative history to show a congressional intent contrary to the conclusion that scienter is thus required under § 17(a)(1) but not under §§ 17(a)(2) and 17(a)(3). Pp. 446 U. S. 695-700.
(c) The language and legislative history of §§ 20(b) and 21(d) both indicate that Congress intended neither to add to nor detract from the requisite showing of scienter under the substantive provisions at issue. Pp. 446 U. S. 700-701.
605 F.2d 612, vacated and remanded.
STEWART, J., delivered the opinion of the Court, in which BURGER, C.J., and WHITE, POWELL, REHNQUIST, and STEVENS, JJ., joined. BURGER, C.J., filed a concurring opinion, post, p. 446 U. S. 702. BLACKMUN, J., filed an opinion concurring in part and dissenting in part, in which BRENNAN, and MARSHALL, JJ., joined, post, p. 446 U. S. 703.