holding that scienter is an element of Section 10(b), Rule 10b-5, and Section 17(a)(1), but not Section 17(a)(2) or (3)
How later courts described this case
- holding that scienter is an element of Section 10(b), Rule 10b-5, and Section 17(a)(1), but not Section 17(a)(2) or (3)
- stating that "a district court may consider scienter or lack of it as one of the aggravating or mitigating factors to be taken into account in exercising its equitable discretion in deciding whether or not to grant injunctive relief"
- reasoning that, when decid- ing whether to enjoin a defendant, the district court should con- sider the “degree of intentional wrongdoing evident in a defend- ant’s past conduct,” including “scienter or lack of it”
- recognizing that, by declining to use terms connoting a state-of-mind requirement, the Securities Act and the Exchange Act did not impose such a requirement for some violations, including registration violations
Written by the judges who cited it.
The opinion
Mr. Chief Justice Burger,
concurring.
I join the opinion of the Court and write separately to make three points:
(1) No matter what mental state § 10 (b) and § 17 (a) were to require, it is clear that the District Court was correct here in entering an injunction against petitioner. Petitioner was informed by an attorney representing Lawn-A-Mat that two representatives of petitioner’s firm were making grossly fraudulent statements to promote Lawn-A-Mat stock. Yet he took no steps to prevent such conduct from recurring. He neither discharged the salesmen nor rebuked them; he did nothing whatever to indicate that such salesmanship was unethical, illegal, and should stop. Hence, the District Court’s findings (a) that petitioner “intentionally failed” to terminate the fraud and (b) that his conduct was reasonably likely to repeat itself find abundant support in the record. In my view, the Court of Appeals could well have affirmed on that ground alone.
(2) I agree that § 10 (b) and § 17 (a)(1) require scienter but that § 17 (a) (2) and § 17 (a) (3) do not. I recognize, of course, that this holding “drives a wedge between [sellers and buyers] and says that henceforth only the seller’s negligent misrepresentations may be enjoined.” Post, at 715 (Black-mun, J., dissenting). But it is not this Court that “drives a *703 wedge”; Congress has done that. The Court’s holding is compelled in large measure by Ernst & Ernst v. Hochfelder, 425 U. S. 185 (1976), and gives effect to congressional intent as manifested in the language of the statutes and in their histories. If, as intimated, the result is “bad” public policy, that is the concern of Congress where changes can be made.
(3) It bears mention that this dispute, though pressed vigorously by both sides, may be much ado about nothing. This is so because of the requirement in injunctive proceedings of a showing that “there is a reasonable likelihood that the wrong will be repeated.” SEC v. Manor Nursing Centers, Inc., 458 F. 2d 1082, 1100 (CA2 1975). Accord, SEC v. Keller Corp., 323 F. 2d 397, 402 (CA7 1963). To make such a showing, it will almost always be necessary for the Commission to demonstrate that the defendant’s past sins have been the result of more than negligence. Because the Commission must show some likelihood of a future violation, defendants whose past actions have been in good faith are not likely to be enjoined. See opinion of the Court, ante, at 701. That is as it should be. An injunction is a drastic remedy, not a mild prophylactic, and should not be obtained against one acting in good faith.