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SECURITIES INVESTOR PROTECTION CORP. v. BARBOUR ET AL.

May 19, 1975

SECURITIES INVESTOR PROTECTION CORP
v.
BARBOUR ET AL.



CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Burger, Douglas, Brennan, Stewart, White, Marshall, Blackmun, Powell, Rehnquist

Author: Marshall

[ 421 U.S. Page 413]

 MR. JUSTICE MARSHALL delivered the opinion of the Court.

The Securities Investor Protection Corp. (SIPC) was established by Congress as a nonprofit membership corporation for the purpose, inter alia, of providing financial relief to the customers of failing brokerdealers with whom they had left cash or securities on deposit. The question presented by this case is whether such customers have an implied private right of action under the Securities Investor Protection Act of 1970 (Act or SIPA), 84 Stat. 1636, 15 U.S.C. § 78aaa et seq.,

[ 421 U.S. Page 414]

     to compel the SIPC to exercise its statutory authority for their benefit.

I

In December 1970 the Securities and Exchange Commission (SEC) filed a complaint in District Court against Guaranty Bond and Securities Corp., a registered broker-dealer, to enjoin continued violation of the Commission's net capital and other rules. On January 6, 1971, the District Court issued a preliminary injunction, and on January 29 it granted the Commission's motion for appointment of a receiver to wind up the affairs of Guaranty Bond. James C. Barbour (hereafter respondent) was appointed receiver.

On April 6, 1972, respondent, alleging that customers of Guaranty Bond would sustain a loss at least equal to the costs of administering the receivership, obtained from the court an order directing the SEC and SIPC to show cause "why the remedies afforded by the [SIPA] should not be made available in this proceeding." In its answer the SEC took the position that respondent had not demonstrated that Guaranty's customers would in fact sustain any loss since it appeared that the receiver would have a cause of action for damages or restitution against Guaranty's parent company and principals. The SIPC, on the other hand, challenged the receiver's standing to maintain an action to compel its intervention and, in direct opposition to the position of the SEC, argued that Guaranty's insolvency prior to the December 30, 1970, date on which the SIPA took effect meant that application of the Act to this case would give it an unlawful retroactive effect.

The District Court upheld the receiver's right of action, but denied relief on the ground that Guaranty's hopeless insolvency prior to the effective date of the SIPA rendered the Act inapplicable. The Court of Appeals for

[ 421 U.S. Page 415]

     the Sixth Circuit reversed. Since Guaranty had conducted 101 transactions after December 30, and the SEC did not move to prevent its carrying on business as a broker-dealer until January 6, it held that Guaranty qualified as a broker-dealer on the effective date of the Act. The court then rejected the SIPC's argument that the provision for SEC enforcement actions to compel the SIPC to perform its functions was meant to be exclusive of such actions by protected customers or their representative, and remanded the case for further proceedings. We granted certiorari, limited to the questions whether customers have an implied right of action to compel the SIPC to act and, if so, whether a receiver has standing to maintain it. 419 U.S. 894 (1974). Since we now reverse the Court of Appeals on the ground that no implied right of action exists, we do not address the second question.

II

Following a period of great expansion in the 1960's, the securities industry experienced a business contraction that led to the failure or instability of a significant number of brokerage firms. Customers of failed firms found their cash and securities on deposit either dissipated or tied up in lengthy bankruptcy proceedings. In addition to its disastrous effects on customer assets and investor confidence, this situation also threatened a "domino effect" involving otherwise solvent brokers that had substantial open transactions with firms that failed. Congress enacted the SIPA to arrest this process, restore investor confidence in the capital markets, and upgrade the financial responsibility requirements for registered brokers and dealers. S. Rep. No. 91-1218, pp. 2-4 (1970); H.R. Rep. No. 91-1613, pp. 2-4 (1970).

The Act apportions responsibility for these tasks among the SEC, the securities industry self-regulatory

[ 421 U.S. Page 416]

     organizations, and the SIPC, a nonprofit, private membership corporation to which most registered brokers and dealers are required to belong. 15 U.S.C. § 78ccc. Most important for present purposes, the Act creates a new form of liquidation proceeding, applicable only to member firms, designed to accomplish ...


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