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SEC Anti-Fraud Rule 10b-5 Broadly Construed by Supreme Court

By Douglas C. Conroy, Michael L. Zuppone and David J. Kaplan

In SEC v. Zandford, 535 U. S. ___, 122 S.Ct. 1899 (2002), the United States Supreme Court has once again addressed the basic jurisdictional requirement for a fraud claim under the Securities and Exchange Commission's "catch-all" anti-fraud Rule 10b-5. In finding a stockbroker's unauthorized sale of client securities and conversion of the sale proceeds to be "in connection with the purchase or sale of any security," the Supreme Court has reaffirmed its long-held view that the federal securities laws must be construed flexibly to achieve their remedial purposes. This salutary goal was achieved, however, at the risk of potentially expanding the reach of federal securities law to an area which was arguably outside its scope beforehand. Because Zandford does n...

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