Petitioner Securities Investor Protection Corp. (SIPC) was
established by Congress under the Securities Investor Protection
Act of 1970 (SIPA) as a nonprofit membership corporation, to
provide,
inter alia, financial relief to the customers of
failing broker-dealers with whom the customers had left cash or
securities on deposit. The SIPA creates procedures for the orderly
liquidation of financially troubled member firms under which the
SIPC is required, by assessing members, to maintain a fund for
customer protection. The SIPC may file an application with a court
for a decree initiating liquidation proceedings if it determines
that a member has failed or is in danger of failing to meet its
obligations to customers, and that any one of five specified
conditions indicating financial difficulty exist, and the filing of
the application vests the court with exclusive jurisdiction over
the member and its property. If the court finds the existence of a
specified condition, it must grant the application, issue the
decree, and appoint the SIPC's designee as trustee to liquidate the
business, and the SIPC is obligated, if necessary, to advance funds
to meet certain customer claims. The Securities and Exchange
Commission (SEC) is given "plenary authority" to supervise the
SIPC, and is specifically authorized to apply to a district court
for an order requiring the SIPC to discharge its statutory
obligations. This action was brought by respondent receiver
appointed to wind up the affairs of Guaranty Bond, an insolvent
registered broker-dealer, to compel the SIPC to exercise its
statutory authority for the benefit of Guaranty Bond's customers.
The District Court denied relief. The Court of Appeals
reversed.
Held: Customers of failing broker-dealers have no
implied right of action under the SIPA to compel the SIPC to act
for their benefit, the SEC's statutory authority to compel the SIPC
to discharge its obligations being the exclusive means by which the
SIPC can be forced to act. Pp. 418-425.
(a) The express statutory provision for one form of proceeding
ordinarily implies that no other enforcement means was intended
Page 421 U. S. 413
by the legislature, and here the SIPA's legislative history was
entirely consonant with the implication of the statutory language
that no private right of action was intended.
Cf. Passenger
Corp. v. Passengers Assn., 414 U. S. 453. Pp.
421 U. S.
418-420.
(b) The overall structure and purpose of the SIPC scheme are
incompatible with an implied private right of action, which might
well precipitate liquidations that the SIPC, which treat that
approach as a last resort, might be able to avoid. Pp.
421 U. S.
420-423.
(c) The SIPA contains no standards of conduct that a private
action could implement.
J. I. Case Co. v. Borak,
377 U. S. 426;
Allen v. State Board of Elections, 393 U.
S. 544, distinguished. Pp.
421 U. S.
423-425.
496 F.2d 145, reversed and remanded.
MARSHALL, J., delivered the opinion of the Court, in which
BURGER, C.J., and BRENNAN, STEWART, WHITE:, BLACKMUN, POWELL, and
REHNQUIST, JJ., joined. DOUGLAS, J., dissented.
MR. JUSTICE MARSHALL delivered the opinion of the Court.
The Securities Investor Protection Corp. (SIPC) was established
by Congress as a nonprofit membership corporation for the purpose,
inter alia, of providing financial relief to the customers
of failing broker-dealers with whom they had left cash or
securities on deposit. The question presented by this case is
whether such customers have an implied private right of action
under the Securities Investor Protection Act of 1970 (Act or SIPA),
84 Stat. 1636, 15 U.S.C. § 78aaa
et seq.,
Page 421 U. S. 414
to compel the SIPC to exercise its statutory authority for their
benefit.
I
In December, 1970, the Securities and Exchange Commission (SEC)
filed a complaint in District Court against Guaranty Bond and
Securities Corp., a registered broker-dealer, to enjoin continued
violation of the Commission's net capital and other rules. On
January 6, 1971, the District Court issued a preliminary
injunction, and, on January 29, it granted the Commission's motion
for appointment of a receiver to wind up the affairs of Guaranty
Bond. James C. Barbour (hereafter respondent) was appointed
receiver.
On April 6, 1972, respondent, alleging that customers of
Guaranty Bond would sustain a loss at least equal to the costs of
administering the receivership, obtained from the court an order
directing the SEC and SIPC to show cause "why the remedies afforded
by the [SIPA] should not be made available in this proceeding." In
its answer, the SEC took the position that respondent had not
demonstrated that Guaranty's customers would, in fact, sustain any
loss, since it appeared that the receiver would have a cause of
action for damages or restitution against Guaranty's parent company
and principals. The SIPC, on the other hand, challenged the
receiver's standing to maintain an action to compel its
intervention, and, in direct opposition to the position of the SEC,
argued that Guaranty's insolvency prior to the December 30, 1970,
date on which the SIPA took effect meant that application of the
Act to this case would give it an unlawful retroactive effect.
The District Court upheld the receiver's right of action, but
denied relief on the ground that Guaranty's hopeless insolvency
prior to the effective date of the SIPA rendered the Act
inapplicable. The Court of Appeals for
Page 421 U. S. 415
the Sixth Circuit reversed. Since Guaranty had conducted 101
transactions after December 30, and the SEC did not move to prevent
its carrying on business as a broker-dealer until January 6, it
held that Guaranty qualified as a broker-dealer on the effective
date of the Act. The court then rejected the SIPC's argument that
the provision for SEC enforcement actions to compel the SIPC to
perform its functions was meant to be exclusive of such actions by
protected customers or their representative, and remanded the case
for further proceedings. We granted certiorari, limited to the
questions whether customers have an implied right of action to
compel the SIPC to act, and, if so, whether a receiver has standing
to maintain it. 419 U.S. 894 (1974). Since we now reverse the Court
of Appeals on the ground that no implied right of action exists, we
do not address the second question.
II
Following a period of great expansion in the 1960's, the
securities industry experienced a business contraction that led to
the failure or instability of a significant number of brokerage
firms. Customers of failed firms found their cash and securities on
deposit either dissipated or tied up in lengthy bankruptcy
proceedings. In addition to its disastrous effects on customer
assets and investor confidence, this situation also threatened a
"domino effect" involving otherwise solvent brokers that had
substantial open transactions with firms that failed. Congress
enacted the SIPA to arrest this process, restore investor
confidence in the capital markets, and upgrade the financial
responsibility requirements for registered brokers and dealers.
S.Rep. No. 91-1218, pp. 2-4 (1970); H.R.Rep. No. 91-1613, pp. 2-4
(1970).
The Act apportions responsibility for these tasks among the SEC,
the securities industry self-regulatory
Page 421 U. S. 416
organizations, and the SIPC, a nonprofit, private membership
corporation to which most registered brokers and dealers are
required to belong. 15 U.S.C. § 78ccc. Most important for present
purposes, the Act creates a new form of liquidation proceeding,
applicable only to member firms, designed to accomplish the
completion of open transactions and the speedy return of most
customer property.
To this end, the SIPC is required to establish and maintain a
fund for customer protection by laying assessments on the annual
gross revenues of its members. The SEC and the securities industry
self-regulatory organizations are required to notify the SIPC
whenever it appears that a member is in or approaching financial
difficulty. If the SIPC determines that a member has failed or is
in danger of failing to meet its obligations to customers, and
finds any one of five specified conditions suggestive of financial
irresponsibility, then it
"may apply to any court of competent jurisdiction . . . for a
decree adjudicating that customers of such member are in need of
the protection provided by [the Act]."
§ 78eee(a)(2).
The mere filing of an SIPC application gives the court in which
it is filed exclusive jurisdiction over the member and its
property, wherever located, and requires the court to stay
"any pending bankruptcy, mortgage foreclosure, equity
receivership, or other proceeding to reorganize, conserve, or
liquidate the [member] or its property and any other suit against
any receiver conservator, or trustee of the [member] or its
property."
§ 78eee(b)(2). If the SEC has pending any action against the
member, it may, with the Commission's consent, be combined with the
SIPC proceeding. If no such action is pending, the SEC may
intervene as a party to the SIPC proceeding.
If the court finds any of the five conditions on which
Page 421 U. S. 417
an SIPC application may be based, it must grant the application
and issue the decree, and appoint as trustee for the liquidation of
the business and as attorney for the trustee, "such persons as SIPC
shall specify." §§ 78eee(b)(1), (3).
The trustee is empowered and directed by the Act to return
customer property, complete open transactions, enforce rights of
subrogation, and liquidate the business of the member, § 78fff(a);
he is not empowered to reorganize or rehabilitate the business. The
SIPC is required to advance him such sums as are necessary to
complete open transactions, and to accomplish the return of
customer property up to a value of $50,000. § 78fff(f).
The role of the SEC in this scheme, insofar as relevant to the
present case, is one of "plenary authority" to supervise the SIPC.
S.Rep. No. 91-1218,
supra at 1;
see H.R.Rep. No.
91-1613,
supra at 12. For example, it may disapprove in
whole or in part any bylaw or rule adopted by the Board of
Directors of the SIPC, or require the adoption of any rule it deems
appropriate, in order to promote the public interest and the
purposes of the Act. 15 U.S.C. § 78ccc(e). It may inspect and
examine the SIPC's records and require that any information it
deems appropriate be furnished to it, and it receives the
corporation's annual report for inspection and transmission, with
its comments, to the President and Congress. § 78ggg(c). It may
participate in any liquidation proceeding initiated by the SIPC,
but, even more important, § 7(b) of the Act, § 78ggg(b),
provides:
"Enforcement of actions. -- In the event of the refusal of SIPC
to commit its funds or otherwise to act for the protection of
customers of any member of SIPC, the Commission may apply to the
district court of the United States in which the principal
Page 421 U. S. 418
office of SIPC is located for an order requiring SIPC to
discharge its obligations under [the Act] and for such other relief
as the court may deem appropriate to carry out the purposes of [the
Act]."
It is against this background relationship between the SIPC and
the SEC that we must approach the question whether, in addition to
the Commission, a member's customers or their representative may
seek in district court to compel the SIPC "to commit its funds or
otherwise to act for the protection" of such customers.
III
The respondent contends that, since the SIPA does not, in terms,
preclude a private cause of action at the instance of a member
broker's customers, and since such customers are the intended
beneficiaries of the Act, the Court should imply a right of action
by which customers can compel the SIPC to discharge its obligations
to them. As we said only last Term in analyzing a similar
contention:
"It goes without saying . . . that the inference of such a
private cause of action not otherwise authorized by the statute
must be consistent with the evident legislative intent and, of
course, with the effectuation of the purposes intended to be served
by the Act."
Passenger Corp. v. Passengers Assn., 414 U.
S. 453,
414 U. S.
457-458 (1974) (hereinafter
Amtrak).
In
Amtrak itself, the petitioner was a corporation
created by Congress to assume from private railroads certain
inter-city rail passenger service responsibilities. The respondent
passenger association brought an action to enjoin the
discontinuance of a particular service as announced by the
corporation pursuant to its authority under § 404(b)(2) of the Rail
Passenger Service Act of 1970 (Amtrak Act), 45 U.S.C. § 564(b)(2).
That Act made express provision for suits against Amtrak to enforce
its duties and obligations only "upon petition of the
Page 421 U. S. 419
Attorney General of the United States or, in a case involving a
labor agreement, upon petition of any employee affected" by the
agreement. 45 U.S.C. § 547(a). There, as here, the plaintiff
respondent argued that statutory authorization for one type of
action against the congressionally created corporation did not
preclude another at the instance of the intended beneficiaries of
the law.
The Court's analysis of the claim in
Amtrak began with
the observation that express statutory provision for one form of
proceeding ordinarily implies that no other means of enforcement
was intended by the Legislature. That implication would yield,
however, to "clear contrary evidence of legislative intent," 414
U.S. at
414 U. S. 458,
for which we turned to the legislative history and the overall
structure of the Amtrak Act.
Inspection revealed that the legislative history of the Amtrak
Act was entirely consonant with the implication of the statutory
language that no private right of action was intended. [
Footnote 1] The general structure and
purpose of the Act gave further support to that conclusion.
Congress had expected that, in creating an economically viable rail
passenger system, some rail service would have to be discontinued
by Amtrak; it had provided an efficient and expeditious means to
that end, which seemed incompatible with an intent to allow a
private action by any passenger affected by a discontinuance
decision. [
Footnote 2]
Page 421 U. S. 420
Nor would the absence of a private right of action leave Amtrak
free to disregard the public interest in its decisionmaking. In
addition to investing the Attorney General with "authority to
police the Amtrak system and to enforce the various duties and
obligations imposed by the Act" by court action, Congress provided
for "substantial scrutiny" over Amtrak's operations by requiring it
to make periodic reports to Congress and the President and to open
its books to the Comptroller General for auditing. 414 U.S. at
414 U. S.
464.
The similarities between the present case and
Amtrak
are undeniable, and, for the respondent, we think, insurmountable.
As with
Amtrak, so with the SIPC, Congress has created a
corporate entity to solve a public problem; it has provided for
substantial supervision of its operations by an agency charged with
protection of the public interest -- here, the SEC -- and for
enforcement by that agency in court of the obligations imposed upon
the corporation. The corporation is required to report to Congress
and the President, and to open its books and records to the SEC and
the Comptroller General. Further, Congress has chartered the SIPC,
unlike Amtrak, as a nonprofit corporation, and it has put its
direction in the hands of a publicly chosen board of directors.
Beyond the inference to be drawn from the structure of the SIPC,
there is no extrinsic evidence that Congress intended to allow an
action such as that before us. [
Footnote 3] As
Page 421 U. S. 421
the respondent concedes, there is no indication in the
legislative history of the SIPA that Congress ever contemplated a
private right of action parallel to that expressly given to the
SEC. Additionally, as in
Amtrak, it is clear that the
overall structure and purpose of the SIPC scheme are incompatible
with such an implied right.
Congress' primary purpose in enacting the SIPA and creating the
SIPC was, of course, the protection of investors. It does not
follow, however, that an implied right of action by investors who
deem themselves to be in need of the Act's protection is either
necessary to, or indeed capable of, furthering that purpose.
The SIPC properly treats an application for the appointment of a
receiver and liquidation of a brokerage firm as a last resort. It
maintains an early warning system, and monitors the affairs of any
firm that it is given reason to believe may be in danger of
failure. Its experience to date demonstrates that, more often than
not, an endangered firm will avoid collapse by infusion of new
capital or merger with a stronger firm. [
Footnote 4] Even failing
Page 421 U. S. 422
those alternatives, a firm may be able to liquidate under the
supervision of one of the self-regulatory organizations, or the
district court, without danger of loss to customers. The SIPC's
policy, therefore, is to defer intervention "until there appear[s]
to be no reasonable doubt that customers would need the protection
of the Act." SIPC 1973 Annual Report 7 (1974). By this policy, the
SIPC avoids unnecessarily engendering the costs of precipitate
liquidations -- the costs not only of administering the liquidation
but also of customer illiquidity and additional loss of confidence
in the capital markets -- without sacrifice of any customer
protection that may ultimately prove necessary. A customer, by
contrast, cannot be expected to consider, or have adequate
information to consider, these public interests in timing his
decision to apply to the courts.
The respondent in this case does not, of course, claim any right
to make the decision that a firm should be liquidated; the Act
makes that a judicial decision. He seeks only the right to ask the
District Court to make that decision when both the SIPC and the SEC
have refused or simply failed to do so. In practical effect,
however, the difference is slight. Except with respect to the
solidest of houses, the mere filing of an action predicated upon
allegations of financial insecurity might often prove fatal.
[
Footnote 5] Other customers
could not be expected to leave
Page 421 U. S. 423
their cash and securities on deposit, nor other brokers to
initiate new transactions that the firm might not be able to cover
when due if a receiver is appointed, nor would suppliers be likely
to continue dealing with such a firm. These consequences are too
grave, and, when unnecessary, too inimical to the purposes of the
Act, for the Court to impute to Congress an intent to grant to
every member of the investing public control over their occurrence.
On the contrary, they seem to be the very sorts of considerations
that motivated Congress to put the SIPC in the hands of a public
board of directors, responsible to an agency experienced in
regulation of the securities markets. [
Footnote 6]
We need not pause long over the distinctions between this case
and those, such as
J. I. Case Co. v. Borak, 377 U.
S. 426 (1964), and
Allen v. State Board of
Elections, 393 U. S. 544
(1969), in which the Court held that an implied private cause of
action was maintainable.
In
J. I. Case, a stockholder sought damages against his
corporation for its alleged misrepresentations, violative of §
14(a) of the Securities Exchange Act of 1934, in soliciting proxy
votes for the approval of a merger. In light of the "broad remedial
purposes" of the Act and the SEC's representation that private
enforcement was necessary to effectuate those purposes, the Court
held that the action for damages could be maintained.
Page 421 U. S. 424
The Court first concluded that it was "clear that private
parties have a right under § 27 [of the Act] to bring suit for
violation of § 14(a)," since § 27 specifically granted the district
courts jurisdiction over "
all suits in equity and actions at
law brought to enforce any liability or duty created'" under the
Act. 377 U.S. at 377 U. S.
430-431. The more difficult question was whether the
private parties, once in court, could seek damages as well as
equitable relief. On this point, the Court agreed with the SEC that
private enforcement of the proxy rules was a necessary supplement
to SEC enforcement. Since there was no contrary indication from
Congress, the Court so held, relying on the statement from Bell
v. Hood, 327 U. S. 678,
327 U. S. 684
(1946) that,
"where legal rights have been invaded, and a federal statute
provides for a general right to sue for such invasion, federal
courts may use any available remedy to make good the wrong
done."
Unlike the Securities Exchange Act, the SIPA contains no
standards of conduct that a private action could help to enforce,
and it contains no general grant of jurisdiction to the district
courts. As in
Amtrak, a private right of action under the
SIPA would be consistent neither with the legislative intent nor
with the effectuation of the purposes it is intended to serve.
The
Allen case arose under the Voting Rights Act of
1965. The question there was whether a private citizen could sue to
set aside a state or local election law on the ground of its
repugnancy to the Act. The federal statute provided that the
Attorney General may bring such suits, but was silent as to the
rights of others. It was clear to the Court -- and to the Attorney
General -- that the Act would be practically unenforceable against
the many local governments subject to its strictures if only the
Attorney General were authorized to sue. We thus found it
"consistent with the broad purpose of the Act to allow
Page 421 U. S. 425
the individual citizen standing to insure that his city or
county government complies with" its requirements. 393 U.S. at
393 U. S.
557.
There is not the slightest reason to think that the SIPA, in
contrast to the Voting Rights Act, imposes such burdens on the
parties charged with its administration that Congress must either
have intended their efforts to be supplemented by those of private
investors or enacted a statute incapable of achieving its purpose.
Instead of enlisting the aid of investors in achieving that
purpose, Congress imposed upon the SEC, the exchanges, and the
self-regulatory organizations the obligation to report to the SIPC
any situation that might call for its intervention.
For these reasons, we are unable to agree with the proposition
that the customers of a member broker may sue to compel the SIPC to
perform its statutory functions. [
Footnote 7] The Judgment of the Court of Appeals is
reversed, and the case is remanded to the District Court with
instructions that the receiver's petition for an order to show
cause be dismissed.
It is so ordered.
MR. JUSTICE DOUGLAS dissents.
[
Footnote 1]
Both the Secretary of Transportation, who was given primary
responsibility for implementing the law, and spokesmen for
organized labor had interpreted the bill as enacted to preclude
private actions other than those specifically authorized. The
drafting subcommittee to which these views had been expressed found
nothing in them to correct.
[
Footnote 2]
See 414 U.S. at
414 U. S.
462:
"If, however, [the Act] were to be interpreted as permitting
private lawsuits to prevent the discontinuance of passenger trains,
then the only effect of the Act in this regard would have been to
substitute the federal district courts for the state or federal
administrative bodies formerly required to pass upon proposed
discontinuances."
[
Footnote 3]
Respondent argues that, because Congress provided that the SIPC
can "sue and be sued, complain and defend, in its corporate name
and through its own counsel, in any court, State, or Federal," 15
U.S.C. § 78ccc(b)(1), it must have contemplated occasions when an
aggrieved customer of a member firm would be able to sue. In light
of the specific terms of the more relevant section governing suits
to compel the SIPC to act for the benefit of investors, that
conclusion is unwarranted. It is also incompatible with the
limitation of SEC actions "to the district court of the United
States in which the principal office of SIPC is located." 15 U.S.C.
§ 78ggg(b). It would be anomalous for Congress to have centralized
SEC suits for the apparent convenience of the SIPC while exposing
the corporation to substantively identical suits by investors "in
any court, State or Federal."
[
Footnote 4]
Of the 266 firms brought to the attention of the SIPC by the
exchanges, self-regulatory organizations, and the SEC between the
effective date of the SIPA and the end of 1973, only 32 were
subjected to SIPC liquidation as of December 31, 1973. Sixty-six
withdrew from the business of carrying customer accounts, 26
self-liquidated, 20 became inactive without customer loss, 11
merged with other firms, 62 corrected their problems, and 49
remained under surveillance. SIPC 1973 Annual Report 17 (1974).
[
Footnote 5]
See Freeman, Administrative Procedures, 22 Bus.Law.
891, 897 (1967):
"The moment you bring a public proceeding against a
broker-dealer who depends upon public confidence in his reputation,
he is, to all intents and purposes, out of business."
See sources collected at Freedman, Summary Action by
Administrative Agencies, 4 U.Chi.L.Rev. 1, 33 n. 162 (1972), and
Gellhorn, Adverse Publicity by Administrative Agencies, 86
Harv.L.Rev. 1380, 1394-1397 (1973). There may, of course, be less
reason for public reaction to a private, as opposed to an SEC, suit
to compel the SIPC's protective measures, but there is little
reason to think that the investing public, with its assets at risk,
would be interested in the distinction.
[
Footnote 6]
The sequence of events giving rise to this case provided no
opportunity for a run on Guaranty, because the attempt to compel
the SIPC's intervention occurred after the firm had ceased doing
business and had come within the jurisdiction of the District Court
for liquidation, at the instance of the SEC. In these limited
circumstances, Congress could reasonably have provided for a
private action by a receiver against the SIPC, but it did not, and
we are not at liberty to do so. There is, after all, a real
difference between a court's implying a right of action to
effectuate the purposes of a statute and its cutting a code of
procedure out of whole cloth.
[
Footnote 7]
The SEC suggests in its brief that a determination by it not to
proceed against the SIPC with respect to a member broker-dealer
whose customers have incurred a loss of the type against which the
SIPA is directed might be reviewable under the Administrative
Procedure Act for an abuse of discretion. We need express no
opinion on that matter today.