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SEC V. CAPITAL GAINS RESEARCH BUREAU, INC., 375 U. S. 180 (1963)
U.S. Supreme Court
SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180 (1963)
Securities and Exchange Commission v.
Capital Gains Research Bureau, Inc.
Argued October 21, 1963
Decided December 9, 1963
375 U.S. 180
Under the Investment Advisers Act of 1940, the Securities and Exchange Commission may obtain an injunction compelling a registered investment adviser to disclose to his clients a practice of purchasing shares of a security for his own account shortly before recommending that security for long-term investment and then immediately selling his own shares at a profit upon the rise in the market price following the recommendation, since such a practice "operates as a fraud or deceit upon any client or prospective client" within the meaning of the Act. Pp. 375 U. S. 181-201.
(a) Congress, in empowering the courts to enjoin any practice which operates "as a fraud or deceit" upon a client, did not intend to require proof of intent to injure and actual injury to the client; it intended the Act to be construed like other securities legislation "enacted for the purpose of avoiding frauds," not technically and restrictively, but rather flexibly to effectuate its remedial purposes. Pp. 375 U. S. 186-195.
(b) The Act empowers the courts, upon a showing such as that made here, to require an adviser to make full and frank disclosure of his practice of trading on the effect of his recommendations. Pp. 375 U. S. 195-197.
(c) In the light of the evident purpose of the Act to substitute a philosophy of disclosure for the philosophy of caveat emptor, it cannot be assumed that the omission from the Act of a specific proscription against nondisclosure was intended to limit the application of the anti-fraud and anti-deceit provisions of the Act so as to render the Commission impotent to enjoin suppression of material facts. Pp. 375 U. S. 197-199.
(d) The 1960 amendment to the Act does not justify a narrow interpretation of the original enactment. Pp. 375 U. S. 199-200.
(e) Even if respondents' advice was "honest," in the sense that they believed it was sound and did not offer it for the purpose of furthering personal pecuniary objectives, the Commission was entitled to an injunction requiring disclosure. Pp. 375 U. S. 200-201.
306 F.2d 606 reversed and remanded.
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