OCTOBER TERM, 1991
Syllabus
HOLMES
v. SECURITIES INVESTOR PROTECTION CORPORATION ET
AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH
CIRCUIT
No. 90-727. Argued November 13, 1991-Decided March 24,1992
Pursuant to its authority under the Securities Investor
Protection Act (SIPA), respondent Securities Investor Protection
Corporation (SIPC) sought, and received, judicial decrees to
protect the customers of two of its member broker-dealers. After
trustees were appointed to liquidate the broker-dealers'
businesses, SIPC and the trustees filed this suit, alleging, among
other things, that petitioner Holmes and others had conspired in a
fraudulent stock-manipulation scheme that disabled the
broker-dealers from meeting obligations to customers; that this
conduct triggered SIPC's statutory duty to advance funds to
reimburse the customers; that the conspirators had violated the
Securities Exchange Act of 1934 and regulations promulgated
thereunder; and that their acts amounted to a "pattern of
racketeering activity" within the meaning of the Racketeer
Influenced and Corrupt Organizations Act (RICO), 18 U. S. C. §§
1962, 1961(1), and (5), so as to entitle the plaintiffs to recover
treble damages, § 1964(c). The District Court entered summary
judgment for Holmes on the RICO claims, ruling,
inter alia,
that SIPC did not meet the "purchaser-seller" requirement for
standing under RICO. The Court of Appeals held the finding of no
standing to be error and, for this and other reasons, reversed and
remanded.
Held: SIPC has demonstrated no right to sue Holmes under
§ 1964(c).
Pp. 265-276.
(a) A plaintiff's right to sue under § 1964(c)-which specifies
that "[a]ny person injured ... by reason of a violation of [§ 1962]
may sue therefor ... and ... recover threefold the damages he
sustains ... "requires a showing that the defendant's violation was
the proximate cause of the plaintiff's injury. Section 1964(c) was
modeled on § 4 of the Clayton Act, which was itself based on § 7 of
the Sherman Act, see
Associated General Contractors of Cal.,
Inc. v.
Carpenters, 459 U. S. 519, 530, and
both antitrust sections had been interpreted to incorporate
common-law principles of proximate causation, see,
e.
g., id., at 533-534, and n. 29, 536, n. 33. It must be
assumed that the Congress which enacted § 1964(c) intended its
words to have the same meaning that courts had already given them.
Cf.
id., at 534. Although § 1964(c)'s language can be read
to require only factual, "but for," causation, this
259
construction is hardly compelled, and the very unlikelihood that
Congress meant to allow all factually injured plaintiffs to recover
persuades this Court that RICO should not get such an expansive
reading. Pp. 265-268.
(b) As used herein, "proximate cause" requires some direct
relation between the injury asserted and the injurious conduct
alleged. For a variety of reasons, see
id., at 540-544, such
directness of relationship is one of the essential elements of
Clayton Act causation. Pp. 268-270.
(c) SIPC's claim that it is entitled to recover on the ground
that it is subrogated to the rights of the broker-dealers'
customers who did not purchase manipulated securities fails because
the conspirators' conduct did not proximately cause those
customers' injury. Even assuming,
arguendo, that SIPC may
stand in the shoes of such customers, the link is too remote
between the stock manipulation alleged, which directly injured the
broker-dealers by rendering them insolvent, and the nonpurchasing
customers' losses, which are purely contingent on the
broker-dealers' inability to pay customers' claims. The facts of
this case demonstrate that the reasons supporting adoption of the
Clayton Act direct-injury limitation, see
ibid., apply with
equal force to § 1964(c) suits. First, if the nonpurchasing
customers were allowed to sue, the district court would first need
to determine the extent to which their inability to collect from
the broker-dealers was the result of the alleged conspiracy, as
opposed to,
e. g., the broker-dealers' poor business
practices or their failures to anticipate financial market
developments. Second, assuming that an appropriate assessment of
factual causation could be made out, the court would then have to
find some way to apportion the possible respective recoveries by
the broker-dealers and the customers, who would otherwise each be
entitled to recover the full treble damages. Finally, the law would
be shouldering these difficulties despite the fact that the
directly injured broker-dealers could be counted on to bring suit
for the law's vindication, as they have in fact done in the persons
of their SIPA trustees. Indeed, the insolvency of the victim
directly injured adds a further concern to those already expressed
in
Associated General Contractors, since a suit by an
indirectly injured victim could be an attempt to circumvent the
relative priority its claim would have in the directly injured
victim's liquidation proceedings. This analysis is not deflected by
the congressional admonition that RICO be liberally construed to
effectuate its remedial purposes, since allowing suits by those
injured only indirectly would open the door to massive and complex
damages litigation, which would not only burden the courts, but
also undermine the effectiveness of treble-damages suits.
Id., at 545. Thus, SIPC must await the outcome of the
trustees' suit
260
Syllabus
and may share according to the priority SIPA gives its claim if
the trustees recover from Holmes. Pp. 270-275.
(d) SIPC's claim that it is entitled to recover under a SIPA
provision, 15 U. S. C. § 78eee(d), fails because, on its face, that
section simply qualifies SIPC as a proper party in interest in any
"matter arising in a liquidation proceeding" as to which it "shall
be deemed to have intervened," and gives SIPC no independent right
to sue Holmes for money damages. Pp. 275-276.
(e) This Court declines to decide whether every RICO plaintiff
who sues under § 1964(c) and claims securities fraud as a predicate
offense must have purchased or sold a security. In light of the
foregoing, discussion of that issue is unnecessary to resolve this
case. Nor willieaving the question unanswered deprive the lower
courts of much-needed guidance. A review of those courts'
conflicting cases shows that all could have been resolved on
proximate-causation grounds, and that none involved litigants like
those in
Blue Chip Stamps v.
Manor Drug Stores,
421 U. S. 723,
who decided to forgo securities transactions in reliance on
misrepresentations. P. 276.
908 F.2d
1461, reversed and remanded.
SOUTER, J., delivered the opinion of the Court, in which
REHNQUIST, C. J., and BLACKMUN, KENNEDY, and THOMAS, JJ., joined,
and in all but Part IV of which WHITE, STEVENS, and O'CONNOR, JJ.,
joined. O'CONNOR, J., filed an opinion concurring in part and
concurring in the judgment, in which WHITE and STEVENS, JJ.,
joined,
post, p. 276. SCALIA, J., filed an opinion
concurring in the judgment,
post, p. 286.
Jack 1.
Samet argued the cause for petitioner.
With him on the briefs were
Jovina R. Hargis and
Stephen
K. Lubega.
G.
Robert Blakey argued the cause for respondents. With
him on the brief for respondent Securities Investor Protection
Corporation were
Stephen C.
Taylor, Mark Riera, Theodore
H. Focht, and
Kevin H. Bell. *
*Briefs of amici curiae urging reversal were filed for the
American Institute of Certified Public Accountants by Louis A.
Craco and John
J. Halloran, Jr.; and for Arthur Andersen
& Co. et al. by Kathryn A. Oberly, Carl D. Liggio, Jon N
Ekdahl, Harris
J. Amhowitz, Howard
J. Krongard,
Leonard P. Novello, and Eldon Olson.
Kevin P. Roddy and
William S.
Lerach filed
a brief for the National Association of Securities and Commercial
Law Attorneys (NASCAT) as
amicus curiae urging
affirmance.
261
JUSTICE SOUTER delivered the opinion of the Court. Respondent
Securities Investor Protection Corporation (SIPC) alleges that
petitioner Robert G. Holmes, Jr., conspired in a stock-manipulation
scheme that disabled two broker-dealers from meeting obligations to
customers, thus triggering SIPC's statutory duty to advance funds
to reimburse the customers. The issue is whether SIPC can recover
from Holmes under the Racketeer Influenced and Corrupt
Organizations Act (RICO), 18 U. S. C. §§ 1961-1968 (1988 ed. and
Supp. II). We hold that it cannot.
I A
The Securities Investor Protection Act of 1970 (SIPA), 84 Stat.
1636, as amended, 15 U. S. C. §§ 78aaa-78lll, authorized the
formation of SIPC, a private nonprofit corporation, § 78ccc(a)(1),
of which most broker-dealers registered under § 15(b) of the
Securities Exchange Act of 1934, § 780(b), are required to be
"members," § 78ccc(a)(2)(A). Whenever SIPC determines that a member
"has failed or is in danger of failing to meet its obligations to
customers," and finds certain other statutory conditions satisfied,
it may ask for a "protective decree" in federal district court. §
78eee(a)(3). Once a court finds grounds for granting such a
petition, § 78eee(b)(1), it must appoint a trustee charged with
liquidating the member's business, § 78eee(b)(3).
After returning all securities registered in specific customers'
names, §§ 78fff-2(c)(2); 78fff(a)(1)(A);
78lll(3), the
trustee must pool securities not so registered together with cash
found in customers' accounts and divide this pool ratably to
satisfy customers' claims, §§ 78fff-2(b); 78fff(a)(1)(B).1 To
1 Such "customer property," see 15 U. S. C. §
78lll(4),
does not become part of the debtor's general estate until all
customers' and SIPC's claims have been paid. See § 78fff-2(c)(I).
That is to say, the claim of a general
262
the extent the pool of customer property is inadequate, SIPC
must advance up to $500,000 per customer2 to the trustee for use in
satisfying those claims. § 78fff-3(a).3
B
On July 24, 1981, SIPC sought a decree from the United States
District Court for the Southern District of Florida to protect the
customers of First State Securities Corporation (FSSC), a
broker-dealer and SIPC member. Three days later, it petitioned the
United States District Court for the Central District of
California, seeking to protect the customers of Joseph Sebag, Inc.
(Sebag), also a broker-dealer and SIPC member. Each court issued
the requested decree and appointed a trustee, who proceeded to
liquidate the brokerdealer.
Two years later, SIPC and the two trustees brought this suit in
the United States District Court for the Central District of
California, accusing some 75 defendants of conspiracy in a
fraudulent scheme leading to the demise of FSSC and Sebago Insofar
as they are relevant here, the allegations were that, from 1964
through July 1981, the defendants manipulated stock of six
companies by making unduly optimistic statements about their
prospects and by continually selling small numbers of shares to
create the appearance of a liquid market; that the broker-dealers
bought substantial amounts of the stock with their own funds; that
the market's perception of the fraud in July 1981 sent the stocks
plummeting;
creditor of the broker-dealer (say, its landlord) is
subordinated to claims of customers and SIPC.
2 With respect to a customer's cash on deposit with the
broker-dealer, SIPC is not obligated to advance more than $100,000
per customer. § 78fff-3(a)(1).
3To cover these advances, SIPA provides for the establishment of
a SIPC Fund. § 78ddd(a)(1). SIPC may replenish the fund from time
to time by levying assessments, § 78ddd(c)(2), which members are
legally obligated to pay, § 78jjj(a).
263
and that this decline caused the broker-dealers' financial
difficulties resulting in their eventual liquidation and SIPC's
advance of nearly $13 million to cover their customers' claims. The
complaint described Holmes' participation in the scheme by alleging
that he made false statements about the prospects of one of the six
companies, Aero Systems, Inc., of which he was an officer,
director, and major shareholder; and that over an extended period
he sold small amounts of stock in one of the other six companies,
the Bunnington Corporation, to simulate a liquid market. The
conspirators were said to have violated § 10(b) of the Securities
Exchange Act of 1934, 15 U. S. C. § 78j(b), Securities and Exchange
Commission (SEC) Rule 10b-5, 17 CFR § 240.10b-5 (1991), and the
mail and wire fraud statutes, 18 U. S. C. §§ 1341, 1343 (1988 ed.,
Supp. II). Finally, the complaint concluded that their acts
amounted to a "pattern of racketeering activity" within the meaning
of the RICO statute, 18 U. S. C. §§ 1962, 1961(1), and (5) (1988
ed. and Supp. II), so as to entitle the plaintiffs to recover
treble damages, § 1964(c).
After some five years of litigation over other issues,4 the
District Court entered summary judgment for Holmes on the RICO
claims, ruling that SIPC "does not meet the 'purchaser-seller'
requirements for standing to assert RICO claims which are
predicated upon violation of Section 10(b) and Rule 10b-5," App. to
Pet. for Cert. 45a,5 and that neither
4 See generally Securities Investor Protection Corporation v.
Vigman,
803 F.2d
1513 (CA9 1986) (Vigman II); Securities Investor
Protection Corporation v. Vigman,
764 F.2d
1309 (CA9 1985) (Vigman I).
5 Two years earlier, the District Court had dismissed SIPC's
non-RICO securities action on the ground that SIPC's claim to have
been subrogated to the rights only of those customers who did not
purchase any of the manipulated securities rendered the action a
failure under the so-called
Birnbaum test, which requires a
plaintiff to be a purchaser or seller of a security. See
Blue
Chip Stamps v.
Manor Drug Stores, 421 U. S. 723
(1975); Birnbaum v.
Newport Steel Corp.,
193 F.2d
461 (CA2), cert. denied, 343 U. S. 956 (1952). The Court
of Appeals for the Ninth Circuit reversed
264
SIPC nor the trustees had satisfied the "proximate cause
requirement under RICO,"
id., at 39a; see
id., at
37a. Although SIPC's claims against many other defendants remained
pending, the District Court under Federal Rule of Civil Procedure
54(b) entered a partial judgment for Holmes, immediately
appealable. SIPC and the trustees appealed.
The United States Court of Appeals for the Ninth Circuit
reversed and remanded after rejecting both of the District Court's
grounds.
Securities Investor Protection Corporation v.
Vigman, 908 F.2d
1461 (1990). The Court of Appeals held first that, whereas a
purchase or sale of a security is necessary for entitlement to sue
on the implied right of action recognized under § 10(b) and Rule
10b-5, see
Blue Chip Stamps v.
Manor Drug Stores,
421 U. S. 723
(1975), the cause of action expressly provided by § 1964(c) of RICO
imposes no such requirement limiting SIPC's standing, 908 F. 2d, at
1465-1467. Second, the appeals court held the finding of no
proximate cause to be error, the result of a mistaken focus on the
causal relation between SIPC's injury and the acts of Holmes alone;
since Holmes could be held responsible for the acts of all his
co-conspirators, the Court of Appeals explained, the District Court
should have looked to the causal relation between SIPC's injury and
the acts of all conspirators.
Id., at 1467-1469.6
Holmes' ensuing petition to this Court for certiorari presented
two issues, whether SIPC had a right to sue under
that ruling,
Vigman II, supra, holding that the District
Court should have permitted SIPC to proceed under the
Birnbaum rule to the extent that FSSC and Sebag had made
unauthorized use of those customers' assets to buy manipulated
securities, as SIPC had alleged they had.
Id., at 15191520.
On remand, after discovery, the District Court ruled that no
genuine issue of material fact existed on the question of
unauthorized use and that Holmes was entitled to summary judgment.
App. to Pet. for Cert. 27a. SIPC has not appealed that ruling.
6 For purposes of this decision, we will assume without deciding
that the Court of Appeals correctly held that Holmes can be held
responsible for the acts of his co-conspirators.
265
RICO,7 and whether Holmes could be held responsible for the
actions of his co-conspirators. We granted the petition on the
former issue alone, 499 U. S. 974 (1991), and now reverse.8
II A
RICO's provision for civil actions reads that
"[a]ny person injured in his business or property by reason of a
violation of section 1962 of this chapter may sue therefor in any
appropriate United States district court and shall recover
threefold the damages he sustains and the cost of the suit,
including a reasonable attorney's fee." 18 U. S. C. § 1964(c).
This language can, of course, be read to mean that a plaintiff
is injured "by reason of" a RICO violation, and therefore may
recover, simply on showing that the defendant violated § 1962,9 the
plaintiff was injured, and the defendant's viola-
7 The petition phrased the question as follows: ''Whether a
party which was neither a purchaser nor a seller of securities, and
for that reason lacked standing to sue under Section lO(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder, is free
of that limitation on standing when presenting essentially the same
claims under the Racketeer Influenced and Corrupt Organizations Act
('RICO')." Pet. for Cert. i.
8 Holmes does not contest the trustees' right to sue under §
1964(c), and they took no part in the proceedings before this Court
after we granted certiorari on the first question alone.
9 Section 1962 lists "Prohibited activities." Before this Court,
SIPC invokes only subsections (c) and (d). See Brief for Respondent
15, and n. 58. Subsection (c) makes it "unlawful for any person ...
associated with any enterprise ... to ... participate ... in the
conduct of such enterprise's affairs through a pattern of
racketeering activity .... " Insofar as it is relevant here,
subsection (d) makes it unlawful to conspire to violate subsection
(c). The RICO statute defines "pattern of racketeering activity" as
"requir[ing] at least two acts of racketeering activity[,] ... the
last of which occurred within ten years ... after the commission of
a prior act of racketeering activity." § 1961(5). The predicate
offenses here at issue are listed in 18 U. S. C. §§ 1961(1)(B) and
(D) (1988 ed., Supp. II), which
266
tion was a "but for" cause of plaintiff's injury. Cf.
Associated General Contractors of Cal., Inc. v.
Carpenters, 459 U. S. 519, 529
(1983). This construction is hardly compelled, however, and the
very unlikelihood that Congress meant to allow all factually
injured plaintiffs to recover 10 persuades us that RICO should not
get such an expansive readingY Not even SIPC seriously argues
otherwise.12
define "racketeering activity" to include "any act which is
indictable under ... section 1341 (relating to mail fraud), [or]
section 1343 (relating to wire fraud), ... or ... any offense
involving ... fraud in the sale of securities ... " 10 "In a
philosophical sense, the consequences of an act go forward to
eternity, and the causes of an event go back to the dawn of human
events, and beyond. But any attempt to impose responsibility upon
such a basis would result in infinite liability for all wrongful
acts, and would 'set society on edge and fill the courts with
endless litigation.''' W. Keeton, D. Dobbs, R. Keeton, & D.
Owen, Prosser and Keeton on Law of Torts § 41, p. 264 (5th ed.
1984) (quoting
North v.
Johnson, 58 Minn. 242, 245,
59 N. W. 1012 (1894)). As we put it in the antitrust context, "An
antitrust violation may be expected to cause ripples of harm to
flow through the Nation's economy; but despite the broad wording of
§ 4 [of the Clayton Act, 15 U. S. C. § 15,] there is a point beyond
which the wrongdoer should not be held liable."
Blue Shield of
Virginia v.
McCready, 457 U. S. 465, 476-477
(1982) (internal quotation marks and citation omitted).
11 The Courts of Appeals have overwhelmingly held that not mere
factual, but proximate, causation is required. See,
e. g.,
Pelletier v.
Zweifel, 921 F.2d
1465, 1499-1500
(CAll), cert. denied, 502 U. S. 855
(1991);
Ocean Energy II, Inc. v.
Alexander &
Alexander, Inc., 868 F.2d
740, 744
(CA5 1989);
Brandenburg v.
Seidel, 859 F.2d
1179, 1189
(CA4 1988);
Sperber v.
Boesky,
849 F.2d
60 (CA2 1988);
Haroco, Inc. v.
American
National Bank &
Trust Co. of Chicago, 747 F.2d
384, 398
(CA7 1984), aff'd,
473 U. S. 606 (1985)
(per curiam). Indeed, the court below recognized a
proximate-cause requirement. See
Securities Investor Protection
Corporation v.
Vigman, 908 F.2d
1461, 1468
(CA9 1990).
12 SIPC does say that the question whether its claim must, and
as alleged may, satisfy the standard of proximate causation is not
within the question on which we granted certiorari. See Brief for
Respondent 3, 33, 34, 38-39. However, the proximate-cause issue is
"fairly included" within that question. See this Court's Rule
14.1(a). SIPC's own restatement of the question presented reads:
"Was the Ninth Circuit correct when it held that SIPC need not be a
'purchaser or seller' of securities to sue under Section 1964(c),
which provides that 'any person' may sue for 'injury to
267
The key to the better interpretation lies in some statutory
history. We have repeatedly observed, see
Agency Holding
Corp. v.
Malley-Duff &
Associates, Inc.,
483 U. S. 143,
150151 (1987);
Shearson/American Express Inc. v.
McMahon, 482
U. S. 220, 241 (1987);
Sedima, S.
P. R. L. v.
Imrex Co., 473 U. S. 479, 489 (1985), that Congress modeled
§ 1964(c) on the civil-action provision of the federal antitrust
laws, § 4 of the Clayton Act, which reads in relevant part that
"any person who shall be injured in his business or property by
reason of anything forbidden in the antitrust laws may sue therefor
... and shall recover threefold the damages by him sustained, and
the cost of suit, including a reasonable attorney's fee." 15 U. S.
C. § 15.
In
Associated General Contractors, supra, we discussed
how Congress enacted §4 in 1914 with language borrowed from § 7 of
the Sherman Act, passed 24 years earlierP Before 1914, lower
federal courts had read § 7 to incorporate common-law principles of
proximate causation, 459 U. S., at 533-534, and n. 29 (citing
Loeb v.
Eastman Kodak Co., 183 F. 704 (CA3 1910);
Ames v.
American Telephone &
Telegraph
Co., 166 F.8d
0 (CC Mass. 1909)), and we reasoned, as many lower federal
courts had done before us, see
Associated Gen-
his business or property' 'by reason of' 'any offense ...
involving fraud in the sale of securities ... punishable under any
law of the United States,' wire fraud, or mail fraud in violation
of Section 1962?" Brief for Respondent i (ellipses in original). By
thus restating the question presented (as was its right to do, see
this Court's Rule 24.2), SIPC properly set the enquiry in the key
of the language of § 1964(c), which we hold today carries a
proximate-cause requirement within it. What is more, SIPC briefed
the proximate-cause issue, see Brief for Respondent 34-36, 38-39,
and announced at oral argument that it recognized the Court might
reach it, see Tr. of Oral Arg. 31.
13 When Congress enacted § 4 of the Clayton Act, § 7 of the
Sherman Act read in relevant part:
"Any person who shall be injured in his business or property by
any other person or corporation by reason of anything forbidden or
declared to be unlawful by this act, may sue .... " 26 Stat.
210.
268
eral Contractors, supra, at 536, n. 33 (citing cases),14
that congressional use of the § 7 language in § 4 presumably
carried the intention to adopt "the judicial gloss that avoided a
simple literal interpretation," 459 U. S., at 534. Thus, we held
that a plaintiff's right to sue under § 4 required a showing that
the defendant's violation not only was a "but for" cause of his
injury, but was the proximate cause as well.
The reasoning applies just as readily to § 1964(c). We may
fairly credit the 91st Congress, which enacted RICO, with knowing
the interpretation federal courts had given the words earlier
Congresses had used first in § 7 of the Sherman Act, and later in
the Clayton Act's § 4. See
Cannon v.
University of
Chicago, 441 U.
S. 677, 696-698 (1979). It used the same words, and we can only
assume it intended them to have the same meaning that courts had
already given them. See,
e. g., Oscar Mayer &
Co.
v.
Evans, 441
U. S. 750, 756
(1979); Northcross v.
Memphis Bd. of
Ed., 412 U. S.
427, 428 (1973). Proximate cause is thus required.
B
Here we use "proximate cause" to label generically the judicial
tools used to limit a person's responsibility for the consequences
of that person's own acts. At bottom, the notion of proximate cause
reflects "ideas of what justice demands, or of what is
administratively possible and convenient." W. Keeton, D. Dobbs, R.
Keeton, & D. Owen, Prosser and Keeton on Law of Torts § 41, p.
264 (5th ed. 1984). Accordingly, among the many shapes this concept
took at common law, see
Associated General Contractors,
supra, at 532-533, was a demand for some direct relation
between the injury asserted and the injurious conduct alleged.
Thus, a plaintiff who complained of harm flowing merely from the
misfortunes visited upon a third person by the defendant's acts was
generally said to stand at too remote a distance to
14 These lower courts had so held well before 1970, when
Congress passed RICO.
269
recover. See,
e. g., 1 J. Sutherland, Law of
Damages 55-56 (1882).
Although such directness of relationship is not the sole
requirement of Clayton Act causation,15 it has been one of its
central elements,
Associated General Contractors, 459 U. S.,
at 540, for a variety of reasons. First, the less direct an injury
is, the more difficult it becomes to ascertain the amount of a
plaintiff's damages attributable to the violation, as distinct from
other, independent, factors.
Id., at 542-543. Second, quite
apart from problems of proving factual causation, recognizing
claims of the indirectly injured would force courts to adopt
complicated rules apportioning damages among plaintiffs removed at
different levels of injury from the violative acts, to obviate the
risk of multiple recoveries.
Id., at 543-544;
Blue Shield
of Virginia v.
McCready, 457 U. S. 465, 473-475
(1982);
Hawaii v.
Standard Oil Co. ofCal., 405 U. S. 251, 264
(1972). And, finally, the need to grapple with these problems is
simply unjustified by the general interest in deterring injurious
conduct, since directly injured victims can generally be counted on
to vindicate the law as
15 We have sometimes discussed the requirement that a §4
plaintiff have suffered "antitrust injury" as a component of the
proximate-cause enquiry. See
Associated General Contractors of
Cal., Inc. v.
Carpenters, 459 U. S. 519,538 (1983);
Blue Shield of Virginia v.
McCready, 457 U. S., at
481-484. We need not discuss it here, however, since "antitrust
injury" has no analogue in the RICO setting. See
Sedima, S.
P. R. L. v.
Imrex Co., 473 U. S. 479, 495-497
(1985).
For the same reason, there is no merit in SIPC's reliance on
legislative history to the effect that it would be inappropriate to
have a "private litigant ... contend with a body of
precedent-appropriate in a purely antitrust context-setting strict
requirements on questions such as 'standing to sue' and 'proximate
cause.'" 115 Congo Rec. 6995 (1969) (American Bar Association
comments on S. 2048). That statement is rightly understood to refer
only to the applicability of the concept of "antitrust injury" to
RICO, which we rejected in
Sedima, supra, at 495-497. See
Brandenburg V.
Seidel, 859 F. 2d, at 1189, n. 11.
Besides, even if we were to read this statement to say what SIPC
says it means, it would not amount to more than background noise
drowned out by the statutory language.
270
private attorneys general, without any of the problems attendant
upon suits by plaintiffs injured more remotely.
Associated
General Contractors, supra, at 541-542.
We will point out in Part III-A below that the facts of the
instant case show how these reasons apply with equal force to suits
under § 1964(c).
III
As we understand SIPC's argument, it claims entitlement to
recover, first, because it is subrogated to the rights of those
customers of the broker-dealers who did not purchase manipulated
securities, and, second, because a SIPA provision gives it an
independent right to sue. The first claim fails because the
conspirators' conduct did not proximately cause the nonpurchasing
customers' injury, the second because the provision relied on gives
SIPC no right to sue for damages.
A
As a threshold matter, SIPC's theory of subrogation is fraught
with unanswered questions. In suing Holmes, SIPC does not rest its
claimed subrogation to the rights of the broker-dealers' customers
on any provision of SIP A. See Brief for Respondent 38, and n. 181.
SIPC assumes that SIP A provides for subrogation to the customers'
claims against the failed broker-dealers, see 15 U. S. C. §§
78fff-3(a), 78fff-4(c); see also § 78fff-2(c)(1)(C); see generally
Mishkin v.
Peat, Marwick, Mitchell &
Co.,
744 F. Supp. 531, 556-557 (SDNY 1990), but not against third
parties like Holmes. As against him, SIPC relies rather on "common
law rights of subrogation" for what it describes as "its money paid
to customers for customer claims against third parties." Brief for
Respondent 38 (footnote omitted). At oral argument in this Court,
SIPC narrowed its subrogation argument to cover only the rights of
customers who never purchased manipu-
271
lated securities. Tr. of Oral Arg. 29.16 But SIPC stops there,
leaving us to guess at the nature of the "common law rights of
subrogation" that it claims, and failing to tell us whether they
derive from federal or state common law, or, if the latter, from
common law of which State.17 Nor does SIPC explain why it declines
to assert the rights of customers who bought manipulated
securities.18
It is not these questions, however, that stymie SIPC's
subrogation claim, for even assuming,
arguendo, that it may
stand in the shoes of nonpurchasing customers, the link is too
remote between the stock manipulation alleged and the customers'
harm, being purely contingent on the harm suffered by the
broker-dealers. That is, the conspirators have allegedly injured
these customers only insofar as the stock manipulation first
injured the broker-dealers and left them without the wherewithal to
pay customers' claims. Although the customers' claims are senior
(in recourse to "customer property") to those of the
broker-dealers' general creditors, see § 78fff-2(c)(1), the causes
of their respective injuries are the same: The broker-dealers
simply cannot pay their bills, and only that intervening insolvency
connects the conspirators' acts to the losses suffered by the
nonpurchasing customers and general creditors.
As we said, however, in
Associated General Contractors,
quoting Justice Holmes, "'The general tendency of the law, in
regard to damages at least, is not to go beyond the first step.'"
459 U. S., at 534 (quoting
Southern Pacific Co. v.
16 And, SIPC made no allegation that any of these customers
failed to do so in reliance on acts or omissions of the
conspirators.
17There is support for the proposition that SIPC can assert
statelaw subrogation rights against third parties. See
Redington v.
Touche Ross &
Co., 592 F.2d
617, 624
(CA2 1978), rev'd on other grounds, 442
18 The record reveals that those customers have brought their
own suit against the conspirators.
272
Darnell-Taenzer Lumber Co., 245 U. S. 531, 533
(1918)),19 and the reasons that supported conforming Clayton Act
causation to the general tendency apply just as readily to the
present facts, underscoring the obvious congressional adoption of
the Clayton Act direct-injury limitation among the requirements of
§ 1964(c).20 If the nonpurchasing customers were
19 SIPC tries to avoid foundering on the rule that creditors
generally may not sue for injury affecting their debtors' solvency
by arguing that those customers that owned manipulated securities
themselves were victims of Holmes' fraud. See Brief for Respondent
39, n. 185 (citing
Ashland Oil, Inc. v.
Arnett,
875 F.2d
1271, 1280
(CA7 1989);
Ocean Energy, 868 F. 2d,
at 744-747;
Bankers Trust Co. v.
Rhoades, 859 F.2d
1096, 1100
1101 (CA2 1988), cert. denied, 490 U. S. 1007
(1989)). While that may well be true, since SIPC does not claim
subrogation to the rights of the customers that purchased
manipulated securities, see
supra, at 270-271, it gains
nothing by the point.
We further note that SIPC alleged in the courts below that, in
late May 1981, Joseph Lugo, an officer of FSSC and one of the
alleged conspirators, parked manipulated stock in the accounts of
customers, among them Holmes, who actively participated in the
parking transaction involving his account. See Statement of
Background and Facts, 1 App. 223-225. Lugo "sold" securities owned
by FSSC to customers at market price and "bought" back the same
securities some days later at the same price plus interest. Under
applicable regulations, a broker-dealer must discount the stock it
holds in its own account, see 17 CFR § 240.
15c3-1(c)(2)(iv)(F)(1)(vi) (1991), and the sham transactions
allowed FSSC to avoid the discount. But for the parking
transactions, FSSC would allegedly have failed capital requirements
sooner; would have been shut down by regulators; and would not have
dragged Sebag with it in its demise. 1 App. 231. Thus, their
customers would have been injured to a lesser extent.
Id.,
at 229, 231. We do not rule out that, if, by engaging in the
parking transactions, the conspirators committed mail fraud, wire
fraud, or "fraud in the sale of securities," see 18 U. S. C. §§
1961(1)(B) and (D) (1988 ed., Supp. I), the broker-dealers'
customers might be proximately injured by these offenses. See,
e. g., Taffet v.
Southern Co., 930
F.2d 847, 856-857
(CAll 1991); County of Suffolk
v.
Long Island Lighting Co., 907 F.2d
1295, 1311-1312
(CA2 1990). However this may be, SIPC in
its brief on the merits places exclusive reliance on a manipulation
theory and is completely silent about the alleged parking
scheme.
20 As we said in
Associated General Contractors, "the
infinite variety of claims that may arise make it virtually
impossible to announce a blackletter rule that will dictate the
result in every case." 459 U. S., at 536
273
allowed to sue, the district court would first need to determine
the extent to which their inability to collect from the
broker-dealers was the result of the alleged conspiracy to
manipulate, as opposed to, say, the broker-dealers' poor business
practices or their failures to anticipate developments in the
financial markets. Assuming that an appropriate assessment of
factual causation could be made out, the district court would then
have to find some way to apportion the possible respective
recoveries by the broker-dealers and the customers, who would
otherwise each be entitled to recover the full treble damages.
Finally, the law would be shouldering these difficulties despite
the fact that those directly injured, the broker-dealers, could be
counted on to bring suit for the law's vindication. As noted above,
the brokerdealers have in fact sued in this case, in the persons of
their SIPA trustees appointed on account of their insolvency.21
(footnote omitted). Thus, our use of the term "direct" should
merely be understood as a reference to the proximate-cause enquiry
that is informed by the concerns set out in the text. We do not
necessarily use it in the same sense as courts before us have and
intimate no opinion on results they reached. See,
e. g.,
Sedima, 473 U. S., at 497, n. 15;
id., at 522 (Marshall,
J., dissenting);
Pelletier, 921 F. 2d, at 1499-1500;
Ocean Energy, supra.
21 If the trustees had not brought suit, SIPC likely could have
forced their hands. To the extent consistent with SIPA, bankruptcy
principles apply to liquidations under that statute. See §
78fff(b); see also § 78fffl(b) (to extent consistent with SIPA,
SIPA trustee has same duties as trustee under Chapter 7 of
Bankruptcy Code); § 78eee(b)(2)(A)(iii) (to extent consistent with
SIPA, court supervising SIPA liquidation has same powers and duties
as bankruptcy court). And, it is generally held that a creditor
can, by petitioning the bankruptcy court for an order to that
effect, compel the trustee to institute suit against a third party.
See
In re Automated Business Systems, Inc.,
642 F.2d
200, 201
(CA6 1981). As a practical matter, it is very
unlikely that SIPC will have to petition a court for such an order,
given its influence over SIPA trustees. See § 78eee(b)(3) (court
must appoint as trustee "such perso[n] as SIPC, in its sole
discretion, specifies," which in certain circumstances may be SIPC
itself); § 78eee(b)(5)(C) (SIPC's recommendation to court on
trustee's compensation is entitled to "considerable reliance" and
is, under certain circumstances, binding).
274
Indeed, the insolvency of the victim directly injured adds a
further concern to those already expressed, since a suit by an
indirectly injured victim could be an attempt to circumvent the
relative priority its claim would have in the directly injured
victim's liquidation proceedings. See
Mid-State Fertilizer
Co. v.
Exchange National Bank of Chicago, 877
As against the force of these considerations of history and
policy, SIPC's reliance on the congressional admonition that RICO
be "liberally construed to effectuate its remedial purposes," §
904(a), 84 Stat. 947, does not deflect our analysis. There is, for
that matter, nothing illiberal in our construction: We hold not
that RICO cannot serve to right the conspirators' wrongs, but
merely that the nonpurchasing customers, or SIPC in their stead,
are not proper plaintiffs. Indeed, we fear that RICO's remedial
purposes would more probably be hobbled than helped by SIPC's
version of liberal construction: Allowing suits by those injured
only indirectly would open the door to "massive and complex damages
litigation[, which would] not only burde[n] the courts, but [would]
also undermin[e] the effectiveness of treble-damages suits."
Associated General Contractors, 459 U. S., at 545.
In sum, subrogation to the rights of the manipulation
conspiracy's secondary victims does, and should, run afoul of
proximate-causation standards, and SIPC must wait on the outcome of
the trustees' suit. If they recover from Holmes, SIPC may share
according to the priority SIPA gives its claim. See 15 U. S. C. §
78fff-2(c).
B
SIPC also claims a statutory entitlement to pursue Holmes for
funds advanced to the trustees for administering the liquidation
proceedings. See Tr. of Oral Arg. 30. Its theory here apparently is
not one of subrogation, to which the statute makes no reference in
connection with SIPC's obligation
275
to make such advances. See 15 U. S. C. § 78fff-3(b)(2).22 SIPC
relies instead, see Brief for Respondent 37, and n. 180, on this
SIP A provision:
"SIPC participation-SIPC shall be deemed to be a party in
interest as to all matters arising in a liquidation proceeding,
with the right to be heard on all such matters, and shall be deemed
to have intervened with respect to all such matters with the same
force and effect as if a petition for such purpose had been allowed
by the court." 15 U. S. C. § 78eee(d).
The language is inapposite to the issue here, however. On its
face, it simply qualifies SIPC as a proper party in interest in any
"matter arising in a liquidation proceeding" as to which it "shall
be deemed to have intervened." By extending a right to be heard in
a "matter" pending between other parties, however, the statute says
nothing about the conditions necessary for SIPC's recovery as a
plaintiff. How the provision could be read, either alone or with §
1964(c), to give SIPC a right to sue Holmes for money damages
simply eludes us.
IV
Petitioner urges us to go further and decide whether every RICO
plaintiff who sues under § 1964(c) and claims securities fraud as a
predicate offense must have purchased or sold a security, an issue
on which the Circuits appear divided.23 We decline to do so. Given
what we have said in Parts II
22 To the extent that SIPC's unexplained remark at oral
argument, see Tr. of Oral Arg. 29-30, could be understood to rest
its claim for recovery of these advances on a theory of
subrogation, it came too late. One looks in vain for any such
argument in its brief.
23 Compare 908 F. 2d, at 1465-1467 (no purchaser-seller rule
under RICO);
Warner v.
Alexander Grant &
Co., 828 F.2d
1528, 1530 (CAll 1987) (same), with
International Data Bank,
Ltd. v.
Zepkin, 812 F.2d
149,
151-154 (CA41987) (RICO plaintiff relying on
securities fraud as predicate offense must have been purchaser or
seller);
Brannan v.
Eisenstein, 804 F. 2d 1041, 1046
(CA8 1986) (same).
276
Opinion of O'CONNOR, J.
and III, our discussion of the issue would be unnecessary to the
resolution of this case. Nor do we think that leaving this question
unanswered will deprive the lower courts of much-needed guidance. A
review of the conflicting cases shows that all could have been
resolved on proximatecausation grounds, and that none involved
litigants like those in
Blue Chip Stamps v.
Manor Drug
Stores, 421 U. S.
723 (1975), persons who had decided to forgo securities
transactions in reliance on misrepresentations. Thus, we think it
inopportune to resolve the issue today.
v
We hold that, because the alleged conspiracy to manipulate did
not proximately cause the injury claimed, SIPC's allegations and
the record before us fail to make out a right to sue petitioner
under § 1964(c). We reverse the judgment of the Court of Appeals
and remand the case for further proceedings consistent with this
opinion.
It is so ordered.
JUSTICE O'CONNOR, with whom JUSTICE WHITE and JUSTICE STEVENS
join, concurring in part and concurring in the judgment.
I agree with the Court that the civil action provisions of the
Racketeer Influenced and Corrupt Organizations Act (RICO), 84 Stat.
941, as amended, 18 U. S. C. §§ 1961-1968 (1988 ed. and Supp. II),
have a proximate cause element, and I can even be persuaded that
the proximate cause issue is "fairly included" in the question on
which we granted certiorari.
Ante, at 266, n. 12. In my
view, however, before deciding whether the Securities Investor
Protection Corporation (SIP C) was proximately injured by
petitioner's alleged activities, we should first consider the
standing question that was decided below, and briefed and argued
here, and which was the only clearly articulated question on which
we granted certiorari. In resolving that question, I would hold
277
that a plaintiff need not be a purchaser or a seller to assert
RICO claims predicated on violations of fraud in the sale of
securities.
Section 10(b) of the Securities Exchange Act of 1934 (1934 Act)
makes it unlawful for any person to use, "in connection with the
purchase or sale of any security," any "manipulative or deceptive
device or contrivance" in contravention of rules or regulations
that the Securities and Exchange Commission (SEC) may prescribe. 15
U. S. C. § 78j(b). Pursuant to its authority under § 10(b), the SEC
has adopted Rule 10b-5, which prohibits manipulative or deceptive
acts "in connection with the purchase or sale of any security." 17
CFR § 240.10b-5 (1991). In 1971, we ratified without discussion the
"established" view that § 10(b) and Rule 10b-5 created an implied
right of action.
Superintendent of Ins. of N.
Y. v.
Bankers Life &
Casualty Co., 404 U. S. 6, 13, n. 9. Four
years later, in
Blue Chip Stamps v.
Manor Drug
Stores, 421 U. S.
723 (1975), we confirmed the federal courts' "longstanding
acceptance" 1 of the rule that a plaintiff must have actually
purchased or sold the securities at issue in order to bring a Rule
10b-5 private damages action.
Id., at 733.
In this case, the District Court held that SIPC, which was
neither a purchaser nor a seller of the allegedly manipulated
securities, lacked standing to assert RICO claims predicated on
alleged violations of § 10(b) and Rule 10b-5. App. to Pet. for
Cert. 45a. The Court of Appeals reversed and held that
Blue Chip
Stamps' purchaser/seller limitation does not apply to suits
brought under RICO.
Securities Investment Protection Corp.
v.
Vigman, 908 F.2d
1461 (CA9 1990). An ex-
IThat acceptance was not universal.
E. g., Eason v.
General Motors Acceptance Corp., 490 F.2d
654, 659
(CA7 1973) (holding that "the protection of
[Rule 10b-5] extends to persons who, in their capacity as
investors, suffer significant injury as a direct consequence of
fraud in connection with a securities transaction, even though
their participation in the transaction did not involve either the
purchase or the sale of a security") (Stevens, J.).
278
Opinion of O'CONNOR, J.
amination of the text of RICO, and a comparison with the
situation the Court confronted in
Blue Chip Stamps,
persuades me that the Court of Appeals' determination was correct.
Because the Court's decision today leaves intact a division among
the Circuits on whether
Blue Chip Stamps' standing
requirement applies in RICO suits,2 I would affirm this portion of
the decision below, even though we go on to hold that the alleged
RICO violation did not proximately cause SIPC's injuries.
Our obvious starting point is the text of the statute under
which SIPC sued. RICO makes it unlawful for any person who has
engaged in a "pattern of racketeering activity" to invest, maintain
an interest, or participate in an enterprise that is engaged in
interstate or foreign commerce. 18 U. S. C. § 1962. "[R]acketeering
activity" is defined to include a number of state and federal
offenses, including any act indictable under 18 U. S. C. § 1341
(1988 ed., Supp. II) (mail fraud) or § 1343 (wire fraud), and "any
offense involving ... fraud in the sale of securities ...
punishable under any law of the United States." § 1961(1). RICO
authorizes "[a]ny person injured in his business or property by
reason of a violation of section 1962" to sue for treble damages in
federal court. § 1964(c).
RICO's civil suit provision, considered on its face, has no
purchaser/seller standing requirement. The statute sweeps
2 Compare
Securities Investment Protection Corp. v.
Vigman, 908 F.2d
1461, 1465-1467
(CA9 1990) (purchaser/seller standing
limitation does not apply to RICO claims predicated on acts of
fraud in the sale of securities);
Warner v.
Alexander
Grant &
Co., 828 F.2d
1528, 1530
(CA111987) (same), with
International Data
Bank, Ltd. v.
Zepkin, 812 F.2d
149, 151-154
(CA4 1987) (standing to bring RICO action
predicated on fraud in the sale of securities is limited to
purchaser or seller of securities);
Brannan v.
Eisenstein, 804 F.2d
1041, 1046
(CA8 1986) (same).
279
broadly, authorizing
"[ainy person" who is injured by
reason of a RICO violation to sue. "[P]erson" is defined to include
"any individual or entity capable of holding a legal or
beneficial interest in property." § 1961(3) (emphasis added).
"Insofar as 'any' encompasses 'all',"
Mobil Oil Exploration
& Producing Southeast, Inc. v.
United
Distribution Cos., 498 U. S. 211, 223 (1991), the words "any
person" cannot reasonably be read to mean only purchasers and
sellers of securities. As we have explained in rejecting previous
efforts to narrow the scope of civil RICO: "If the defendant
engages in a pattern of racketeering activity in a manner forbidden
by [§ 1962's] provisions, and the racketeering activities injure
the plaintiff in his business or property, the plaintiff has a
claim under § 1964(c). There is no room in the statutory language
for an additional ... requirement."
Sedima,
Of course, a RICO plaintiff "only has standing if, and can only
recover to the extent that, he has been injured in his business or
property by [reason of] the conduct constituting the violation."
Id., at 496. We have already remarked that the requirement
of injury in one's "business or property" limits the availability
of RICO's civil remedies to those who have suffered injury in fact.
Id., at 497 (citing
Haroco, Inc. v.
American
National Bank &
Trust Co. of Chicago, 747 F.2d
384, 398 (CA7 1984)). Today, the Court sensibly holds that the
statutory words "by reason of" operate, as they do in the antitrust
laws, to confine RICO's civil remedies to those whom the defendant
has truly injured in some meaningful sense. Requiring a proximate
relationship between the defendant's actions and the plaintiff's
harm, however, cannot itself preclude a nonpurchaser or nonseller
of securities, alleging predicate acts of fraud in the sale of
securities, from bringing suit under § 1964(c). Although the words
"injury in [one's] business or property" and "by reason of" are
words of limitation, they do not categorically exclude non-
280
Opinion of O'CONNOR, J.
purchasers and nonsellers of securities from the universe of
RICO plaintiffs.
Petitioner argues that the civil suit provisions of § 1964(c)
are not as sweeping as they appear because § 1964(c) incorporates
the standing requirements of the predicate acts alleged. But §
1964(c) focuses on the "injur[yJ" of any "person," not the legal
right to sue of any proper plaintiff for a predicate act. If
standing were to be determined by reference to the predicate
offenses, a private RICO plaintiff could not allege as predicates
many of the acts that constitute the definition of racketeering
activity. The great majority of acts listed in § 1961(1) are
criminal offenses for which only a State or the Federal Government
is the proper party to bring suit. In light of § 1964(c)'s
provision that "any person" injured by reason of a RICO violation
may sue, I would not accept that this same section envisions an
overlay of standing requirements from the predicate acts, with the
result that many RICO suits could be brought only by government
entities.
Nor can I accept the contention that, even if § 1964(c) does not
normally incorporate the standing requirements of the predicate
acts, an exception should be made for "fraud in the sale of
securities" simply because it is well established that a plaintiff
in a civil action under § 10(b) and Rule 10b-5 must be either a
purchaser or seller of securities. A careful reading of § 1961(1)
reveals the flaw in this argument. The relevant predicate offense
is "any offense involving ... fraud in the sale of securities ...
punishable under any law of the United States." The embracing words
"offense ... punishable under any law of the United States" plainly
signify the elements necessary to bring a criminal prosecution. See
Trane Co. v.
O'Connor Securities, 718 F.2d
26, 29 (CA2
1983); Dan River, Inc. v.
Icahn,
701 F.2d
278, 291 (CA4 1983). To the extent that RICO's reference to an
"offense involving fraud in the sale of securities" encompasses
conduct that violates § 10(b), see
infra, at 282-283, the
relevant predicate is
281
defined not by § 10(b) itself, but rather by § 32(a) of the 1934
Act, 15 U. S. C. § 78ff(a), which authorizes criminal sanctions
against any person who willfully violates the Act or rules
promulgated thereunder. As we have previously made clear, the
purchaser/seller standing requirement for private civil actions
under § 10(b) and Rule 10b-5 is of no import in criminal
prosecutions for willful violations of those provisions.
United
States v.
Naftalin, 441 U. S. 768, 774, n. 6
(1979); SEe v.
National Securities, Inc., 393 U. S. 453, 467, n. 9
(1969). Thus, even if Congress intended RICO's civil suit provision
to subsume established civil standing requirements for predicate
offenses, that situation is not presented here.
Although the civil suit provisions of § 1964(c) lack a
purchaser/seller requirement, it is still possible that one lurks
in § 1961(1)'s catalog of predicate acts; i.
e., it is
possible that § 1961(1) of its own force limits RICO standing to
the actual parties to a sale. As noted above, the statute defines
"racketeering activity" to include "any offense involving ... fraud
in the sale of securities ... punishable under any law of the
United States." Unfortunately, the term "fraud in the sale of
securities" is not further defined. "[A]ny offense ... punishable
under any law of the United States" presumably means that Congress
intended to refer to the federal securities laws and not common-law
tort actions for fraud. Unlike most of the predicate offenses
listed in § 1961(1), however, there is no cross-reference to any
specific sections of the United States Code. Nor is resort to the
legislative history helpful in clarifying what kinds of securities
violations Congress contemplated would be covered. See generally
Bridges, Private RICO Litigation Based Upon "Fraud in the Sale of
Securities," 18 Ga. L. Rev. 43, 58-59 (1983) (discussing paucity of
legislative history); Note, RICO and Securities Fraud: A Workable
Limitation, 83 Colum. L. Rev. 1513, 15361539 (1983) (reviewing
testimony before Senate Judiciary Committee).
282
Opinion of O'CONNOR, J.
Which violations of the federal securities laws, if any,
constitute a "fraud in the sale of securities" within the meaning
of § 1961(1) is a question that has generated much ink and little
agreement among courts 3 or commentators,4 and one
3 Compare
First Pacific Bancorp, Inc. v. Bro, 847 F.2d
542, 546
(CA9 1988) (violations of §§ 13(d) and 14(e) of
the 1934 Act cannot be RICO predicate offenses because neither
provision embraces fraud "in the sale" of a security);
In re Par
Pharmaceutical, Inc. Securities Litigation, 733 F. Supp. 668
(SDNY 1990) (violation of § lO(b) and Rule lOb-5 involving fraud in
connection with the purchase of securities cannot be a predicate
offense), with
In re Catanella and E. F.
Hutton &
Co. Securities Litigation, 583 F. Supp. 1388, 1425, n. 56
(ED Pa. 1984) (reach of RICO claims predicated on violations of §
lOb and Rule 10b-5 encompasses "both purchases and sales");
Lou v.
Belzberg, 728 F. Supp. 1010, 1026 (SDNY 1990)
(violation of Hart-Scott-Rodino reporting requirement relates to
"fraud in the sale of securities" and may constitute a RICO
predicate act);
Spencer Coso v.
Agency Rent-A-Car,
Inc., 1981-1982 CCH Fed. Sec. L. Rep. , 98,361, p. 92,215
(Mass. 1981) (violation of § 13(d) reporting requirements is RICO
predicate act because "[t]he remedial purpose of the statute would
appear to encompass fraud committed by the purchaser of securities,
as well as by the seller").
4 See,
e. g., Bridges, Private RICO Litigation
Based Upon "Fraud in the Sale of Securities," 18 Ga. L. Rev. 43, 81
(1983) ("fraud in the sale of securities" encompasses any violation
of a specific antifraud or antimanipulation provision of the
securities laws and regulations or use of stolen or counterfeit
securities, as long as violation is by means of an actual sale of
securities); Johnson, Predators Rights: Multiple Remedies for Wall
Street Sharks Under the Securities Laws and RICO, 10 J. Corp. L. 3,
39-40 (1984) (allegations of violations of antifraud provisions of
the federal securities laws should satisfy "fraud in the sale of
securities" definition); Long, Treble Damages for Violations of the
Federal Securities Laws: A Suggested Analysis and Application of
the RICO Civil Cause of Action, 85 Dick. L. Rev. 201, 225-226
(1981) (any violation of federal securities laws other than
reporting or "housekeeping" measures suffices to assert predicate
act of "fraud in the sale of securities"); MacIntosh, Racketeer
Influenced and Corrupt Organizations Act: Powerful New Tool of the
Defrauded Securities Plaintiff, 31 Kan. L. Rev. 7,30-37 (1982)
("fraud in the sale of securities" is both broader and narrower
than antifraud provisions of securities laws); Mathews, Shifting
the Burden of Losses in the Securities Markets:
The Role of Civil RICO in Securities Litigation, 65 Notre Dame
L. Rev. 896, 944-947 (1990) (securities fraud is a predicate
offense only if fraud
283
which we need not definitively resolve here. The statute
unmistakably requires that there be fraud, sufficiently willful to
constitute a criminal violation, and that there be a sale of
securities. At the same time, however, I am persuaded that
Congress' use of the word "sale" in defining the predicate offense
does not
necessarily dictate that a RICO plaintiff have been
a party to an executed sale.
Section 1961(1)'s list of racketeering offenses provides the
RICO predicates for both criminal prosecutions and civil actions.
Obviously there is no requirement that the Government be party to a
sale before it can bring a RICO prosecution predicated on "fraud in
the sale of securities." Accordingly, any argument that the offense
itself embodies a standing requirement must apply only to private
actions. That distinction is not tenable, however. By including a
private right of action in RICO, Congress intended to bring "the
pressure of 'private attorneys general' on a serious national
problem for which public prosecutorial resources [were] deemed
inadequate."
Agency Holding Corp. v.
Malley-Duff
&
Associates, Inc., 483 U. S. 143, 151
(1987). Although not everyone can qualify as an appropriate
"private attorney general," the prerequisites to the role are
articulated, not in the definition of the predicate act, but in the
civil action provisions of § 1964(c)-a plaintiff must allege
"injur[y] in his business or property by reason of" a RICO
violation.
Construing RICO's reference to "fraud in the sale of securities"
to limit standing to purchasers and sellers would be
occurs in actual sale of a security); Tyson & August, The
Williams Act After RICO: Has the Balance Tipped in Favor of
Incumbent Management?, 35 Hastings L. J. 53,79-80 (1983) (criminal
violations of antifraud provisions of the securities laws should
constitute racketeering activity, provided that the conduct is in
connection with purchase or sale of securities); Note, Application
of the Racketeer Influenced and Corrupt Organizations Act (RICO) to
Securities Violations, 8 J. Corp. L. 411, 430-431 (1983) ("fraud in
the sale of securities" applies to fraudulent purchase as well as
fraudulent sale of securities).
284
Opinion of O'CONNOR, J.
in tension with our reasoning in
Blue Chip Stamps. In
that case, the Court admitted that it was not "able to divine from
the language of § 10(b) the express 'intent of Congress' as to the
contours of a private cause of action under Rule 10b-5." 421 U. S.,
at 737. The purchaser/seller standing limitation in Rule 10b-5
damages actions thus does not stem from a construction of the
phrase "in connection with the purchase or sale of any security."
Rather, it rests on the relationship between § 10(b) and other
provisions of the securities laws,
id., at 733-736, and the
practical difficulties in granting standing in the absence of an
executed transaction,
id., at 737-749, neither of which are
relevant in the RICO context.
Arguably, even if § 10(b)'s reference to fraud
"in connection
with" the sale of a security is insufficient to limit the
plaintiff class to purchasers and sellers, § 1961(1)'s reference to
fraud
"in" the sale of a security performs just such a
narrowing function. But we have previously had occasion to express
reservations on the validity of that distinction. In
United
States v.
Naftalin, 441 U. S. 768 (1979), we
reinstated the conviction of a professional investor who engaged in
fraudulent "short selling" by placing orders with brokers to sell
shares of stock which he falsely represented that he owned. This
Court agreed with the District Court that N aftalin was guilty of
fraud "in" the "offer" or "sale" of securities in violation of §
17(a)(1) of the Securities Act of 1933, 15 U. S. C. § 77q(a)(l),
even though the fraud was perpetrated on the brokers, not their
purchasing clients. The Court noted:
"[Naftalin] contends that the requirement that the fraud be 'in'
the offer or sale connotes a narrower range of activities than does
the phrase 'in connection with,' which is found in § 10(b) ....
First, we are not necessarily persuaded that 'in' is narrower than
'in connection with.' Both Congress, see H. R. Rep. No. 85, 73d
Cong., 1st Sess., 6 (1933), and this Court, see Superintendent
of Insurance v. Bankers Life & Cas. Co.,
404 U. S. 6,10
285
(1971), have on occasion used the terms interchangeably. But
even if 'in' were meant to connote a narrower group of transactions
than 'in connection with,' there is nothing to indicate that 'in'
is narrower in the sense insisted upon by Naftalin." 441 U. S., at
773, n. 4.
So also in today's case. To the extent that there is a
meaningful difference between Congress' choice of "in" as opposed
to "in connection with," I do not view it as limiting the class of
RICO plaintiffs to those who were parties to a sale. Rather,
consistent with today's decision, I view it as confining the class
of defendants to those proximately responsible for the plaintiff's
injury and excluding those only tangentially "connect[ed] with"
it.
In
Blue Chip Stamps, we adopted the purchaser/seller
standing limitation in § 10(b) cases as a prudential means of
avoiding the problems of proof when no security was traded and the
nuisance potential of vexatious litigation. 421 U. S., at 738-739.
In that case, however, we were confronted with limiting access to a
private cause of action that was judicially implied. We expressly
acknowledged that "if Congress had legislated the elements of a
private cause of action for damages, the duty of the Judicial
Branch would be to administer the law which Congress enacted; the
Judiciary may not circumscribe a right which Congress has conferred
because of any disagreement it might have with Congress about the
wisdom of creating so expansive a liability."
Id., at 748.
To be sure, the problems of expansive standing identified in
Blue Chip Stamps are exacerbated in RICO. In addition to the
threat of treble damages, a defendant faces the stigma of being
labeled a "racketeer." Nonetheless, Congress
has legislated
the elements of a private cause of action under RICO. Specifically,
Congress has authorized
"[ainy person injured in his
business or property by reason of" a RICO violation to bring suit
under §1964(c). Despite the very real specter of vexatious
litigation based on speculative damages, it is within Congress'
power to create a private right of ac-
286
SCALIA, J., concurring in judgment
tion for plaintiffs who have neither bought nor sold securities.
For the reasons stated above, I think Congress has done so. "That
being the case, the courts are without authority to restrict the
application of the statute."
United States v.
Turkette, 452
U. S. 576, 587 (1981).
In sum, we granted certiorari to resolve a split among the
Circuits as to whether a nonpurchaser or nonseller of securities
could assert RICO claims predicated on violations of § 10(b) and
Rule 10b-5. See cases cited n. 1,
supra. I recognize that,
like the case below, some of those decisions might have been more
appropriately cast in terms of proximate causation. That we have
now more clearly articulated the causation element of a civil RICO
action does not change the fact that the governing precedent in
several Circuits is in disagreement as to
Blue Chip Stamps'
applicability in the RICO context. Because that issue was decided
below and fully addressed here, we should resolve it today. I would
sustain the Court of Appeals' determination that RICO plaintiffs
alleging predicate acts of fraud in the sale of securities need not
be actual purchasers or sellers of the securities at issue.
Accordingly, I join all of the Court's opinion except Part IV.
JUSTICE SCALIA, concurring in the judgment.
I agree with JUSTICE O'CONNOR that in deciding this case we
ought to reach, rather than avoid, the question on which we granted
certiorari. I also agree with her on the answer to that question:
that the purchaser-seller rule does not apply in civil RICO cases
alleging as predicate acts violations of Securities and Exchange
Commission Rule 10b-5, 17 CFR § 240.10b-5 (1991). My reasons for
that conclusion, however, are somewhat different from hers.
The ultimate question here is statutory standing: whether the
so-called
nexus (mandatory legalese for "connection")
between the harm of which this plaintiff complains and the
defendant's so-called predicate acts is of the sort that will
sup-
287
port an action under civil RICO. See
Sedima, S.
P. R.
L. v.
Imrex Co., 473 U. S. 479, 497
(1985). One of the usual elements of statutory standing is
proximate causality. It is required in RICO not so much because
RICO has language similar to that of the Clayton Act, which in turn
has language similar to that of the Sherman Act, which, by the time
the Clayton Act had been passed, had been interpreted to include a
proximate-cause requirement; but rather, I think, because it has
always been the practice of common-law courts (and probably of all
courts, under all legal systems) to require as a condition of
recovery, unless the legislature specifically prescribes otherwise,
that the injury have been proximately caused by the offending
conduct. Life is too short to pursue every human act to its most
remote consequences; "for want of a nail, a kingdom was lost" is a
commentary on fate, not the statement of a major cause of action
against a blacksmith. See
Associated General Contractors of
Cal., Inc. v.
Carpenters, 459 U. S. 519, 536
(1983).
Yet another element of statutory standing is compliance with
what I shall call the "zone-of-interests" test, which seeks to
determine whether, apart from the directness of the injury, the
plaintiff is within the class of persons sought to be benefited by
the provision at issue. * Judicial inference of a zone-of-interests
requirement, like judicial inference of a proximate-cause
requirement, is a background practice against which Congress
legislates. See
Block v.
Community Nutrition
Institute, 467 U.
S. 340, 345-348 (1984). Sometimes considerable limitations upon
the zone of interests are set forth explicitly in the statute
itself-but rarely, if ever, are those limitations so complete that
they are
*My terminology may not be entirely orthodox. It may be that
proximate causality is
itself an element of the
zone-of-interests test as that phrase has ordinarily been used,
see,
e. g., Wyoming v.
Oklahoma, 502 U. S. 437, 473
(1992) (SCALIA, J., dissenting), but that usage would leave us
bereft of terminology to connote those aspects of the
"violation-injury connection" aspect of standing that are distinct
from proximate causality.
288
SCALIA, J., concurring in judgment
deemed to preclude the judicial inference of others. If, for
example, a securities fraud statute specifically conferred a cause
of action upon "all purchasers, sellers, or owners of stock injured
by securities fraud," I doubt whether a stockholder who suffered a
heart attack upon reading a false earnings report could recover his
medical expenses. So also here. The phrase "any person injured in
his business or property by reason of" the unlawful activities
makes clear that the zone of interests does not extend
beyond those injured in that respect-but does not
necessarily mean that it includes
all those injured in that
respect. Just as the phrase does not exclude normal judicial
inference of proximate cause, so also it does not exclude normal
judicial inference of zone of interests.
It seems to me obvious that the proximate-cause test and the
zone-of-interests test that will be applied to the various causes
of action created by 18 U. S. C. § 1964 are not uniform, but vary
according to the nature of the criminal offenses upon which those
causes of action are based. The degree of proximate causality
required to recover damages caused by predicate acts of sports
bribery, for example, see 18 U. S. C. § 224, will be quite
different from the degree required for damages caused by predicate
acts of transporting stolen property, see 18 U. S. C. §§ 2314-2315.
And so also with the applicable zone-of-interests test: It will
vary with the underlying violation. (Where the predicate acts
consist of different criminal offenses, presumably the plaintiff
would have to be within the degree of proximate causality and
within the zone of interests as to all of them.)
It also seems to me obvious that unless some reason for making a
distinction exists, the background zone-of-interests test applied
to one cause of action for harm caused by violation of a particular
criminal provision should be the same as the test applied to
another cause of action for harm caused by violation of the same
provision. It is principally in this respect that I differ from
JUSTICE O'CONNOR'S analysis,
289
ante, at 280 (opinion concurring in part and concurring
injudgment). If, for example, one statute gives persons injured by
a particular criminal violation a cause of action for damages, and
another statute gives them a cause of action for equitable relief,
the persons coming within the zone of interests of those two
statutes would be identical. Hence the relevance to this case of
our decision in
Blue Chip Stamps v.
Manor Drug
Stores, 421 U. S.
723 (1975). The predicate acts of securities fraud alleged here
are violations of Rule 10b-5; and we held in
Blue Chip
Stamps that the zone of interests for civil damages
attributable to violation of that provision does not include
persons who are not purchasers or sellers. As I have described
above, just as RICO's statutory phrase "injured in his business or
property by reason of" does not extend the rule of proximate
causation otherwise applied to congressionally created causes of
action, so also it should not extend the otherwise applicable rule
of zone of interests.
What prevents that proposition from being determinative here,
however, is the fact that
Blue Chip Stamps did not involve
application of the background zone-of-interests rule to a
congressionally created Rule 10b-5 action, but rather specification
of the contours of a Rule 10b-5 action "implied" (i.
e.,
created) by the Court itself-a practice we have since happily
abandoned, see,
e. g., Touche Ross &
Co. v.
Redington, 442
U. S. 560, 568-571, 575-576 (1979). The policies that we
identified in
Blue Chip Stamps, supra, as supporting the
purchaser-seller limitation (namely, the difficulty of assessing
the truth of others' claims, see
id., at 743-747, and the
high threat of "strike" or nuisance suits in securities litigation,
see
id., at 740-741) are perhaps among the factors properly
taken into account in determining the zone of interests covered by
a statute, but they are surely not alone enough to restrict
standing to purchasers or sellers under a text that contains no
hint of such a limitation. I think, in other words, that the
limitation we approved in
Blue Chip Stamps was essentially a
legislative judgment rather than an
290
SCALIA, J., concurring in judgment
interpretive one. Cf.
Franklin v.
Gwinnett County
Public Schools, ante, at 77 (SCALIA, J., concurring in
judgment). It goes beyond the customary leeway that the
zone-ofinterests test leaves to courts in the construction of
statutory texts.
In my view, therefore, the Court of Appeals correctly rejected
the assertion that SIPC had no standing because it was not a
purchaser or seller of the securities in question. A
proximate-cause requirement also applied, however, and I agree with
the Court that that was not met. For these reasons, I concur in the
judgment.
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