JOHN NUVEEN & CO., INC. v. SANDERS - 450 U.S. 1005 (1981)
U.S. Supreme Court
JOHN NUVEEN & CO., INC. v. SANDERS , 450 U.S. 1005 (1981)
450 U.S. 1005
JOHN NUVEEN & CO., INC., et al.
Henry T. SANDERS et al
Supreme Court of the United States
March 23, 1981
On petition for writ of certiorari to the United States Court of Appeals for the Seventh Circuit.
The petition for a writ of certiorari is denied.
Justice POWELL, with whom Justice REHNQUIST joins, dissenting.
This securities controversy, which has been in litigation for 11 years, involves sales of commercial paper in the 1960's. The Court of Appeals for the Seventh Circuit has heard the case four times on various issues over the years, and the present petition for certiorari is the third to come before the Supreme Court. The Court today denies further review, and it is indeed long past time that this litigation should come to rest. I dissent from the denial of certiorari, however, because I believe that the Court of Appeals has seriously misapplied the Securities Act of 1933. Its decision could
affect adversely the efficiency of the Nation's short-term financing markets.
Justice STEVENS took no part in the consideration or decision of this petition.
John Nuveen & Co. (hereinafter petitioner) is a broker and dealer registered with the Securities and Exchange Commission (SEC). In the late 1960's, petitioner undertook to sell the short-term promissory notes- commercial paper-of Winter & Hirsch, Inc. (W&H), a consumer finance company. Relying on (i) the company's certified financial statements, (ii) responses to inquiries from banks, and (iii) a brief inspection of company records, petitioner issued a "Commercial Paper Report," similar to a prospectus, on W&H commercial paper. The report reviewed the data in certified financial statements and noted that "[t]he ratio of debt to capital funds came to 311%-Excellent! . . . Bad debts charged off came to $ 375,000, and recoveries in relation were $173,000-46%, an excellent showing." Respondents and other customers of petitioner made purchases.
Unknown to petitioner and to the public W&H at the time was in serious financial trouble. W&H officers had conspired with auditors from the certified public accounting firm of Lieber, Bleiweis & Co. to tamper with the company's financial statements to make the company appear profitable. Its financial statement for 1968 showed that W&H had earned $ 500,000; in fact, it had lost about $1 million.
When the fraud was discovered in 1970, officials from W&H and Lieber, Bleiweis, were convicted of federal fraud charges. Holders of W&H commercial paper were paid about 65 cents on the dollar. A class of plaintiffs, respondents here, sued under a variety of theories to recover the remainder. The issue presently before the Court concerns liability under 12(2) of the Securities Act of 1933, 48 Stat. 84, as amended, 15 U. S.C. 77l (2), which provides, in pertinent part:
- "Any person who-
"(2) offers or sells a security . . . by means of a pro- [450 U.S. 1005 , 1007]