SEC v. Zandford

The Court said a broker can commit federal securities fraud by secretly selling a client's securities and taking the money for himself. In a 9-0 ruling, the justices concluded that this scheme was sufficiently tied to the securities sales.

The Court ruled 9-0 for the SEC; Chief Justice Rehnquist and Justices Stevens, O'Connor, Scalia, Kennedy, Souter, Thomas, Ginsburg, and Breyer were in the majority, and Justice Stevens wrote the opinion.

“Assuming that the complaint's allegations were true, the securities broker's conduct was in connection with the purchase or sale of a security.”

The decision gives the SEC a clearer path to pursue brokers who misuse customer assets during securities transactions. For example, an investor whose broker secretly sells stock and steals the proceeds can point to federal securities-fraud protections, not just theft laws.

The case returns to the lower courts for further proceedings consistent with the Supreme Court's decision. The SEC and private parties can use this ruling as support when pursuing fraud claims tied to securities transactions.

The dispute was whether a broker's secret sale of a customer's securities and theft of the proceeds counted as fraud tied to a securities sale. The Court said yes.

Investors, brokers, and the SEC are directly affected. The ruling strengthens federal enforcement when a broker misuses customer assets through securities trades.

Lower courts must apply the Supreme Court's reading of the law in the case going forward. Regulators and litigants can also cite the ruling in similar fraud cases.