Section 206b(2) Essay

3234 WordsDec 16, 201313 Pages
UNITED STATES v. NAFTALIN. No. 78-561. Supreme Court of United States. Argued March 26, 1979. Decided May 21, 1979. CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT. 769*769 Stephen M. Shapiro argued the cause for the United States. With him on the briefs were Solicitor General McCree, Assistant 770*770 Attorney General Heymann, Robert J. Erickson, and David Ferber. Joe A. Walters argued the cause and filed a brief for respondent. MR. JUSTICE BRENNAN delivered the opinion of the Court. The question presented in this case is whether § 17 (a) (1) of the Securities Act of 1933, 48 Stat. 84, as amended, 68 Stat. 686, 15 U. S. C. § 77q (a) (1), prohibits frauds against brokers as well as investors. We hold that it does. Respondent, Neil Naftalin, was the president of a registered broker-dealer firm and a professional investor. Between July and August 1969, Naftalin engaged in a "short selling" scheme. He selected stocks that, in his judgment, had peaked in price and were entering into a period of market decline. He then placed with five brokers orders to sell shares of these stocks, although he did not own the shares he purported to sell. Gambling that the price of the securities would decline substantially before he was required to deliver them, respondent planned to make offsetting purchases through other brokers at lower prices. He intended to take as profit the difference between the price at which he sold and the price at which he covered. Respondent was aware, however, that had the brokers who executed his sell orders known that he did not own the securities, they either would not have accepted the orders, or would have required a margin deposit. He therefore falsely represented that he owned the shares he directed them to sell.[1] Unfortunately for respondent, the market prices of the securities he "sold" did not

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