Securities Regulation the Securities and

Securities Regulation The Securities and Exchange Commission (SEC) founded in 1934 by the Securities Exchange Act is charged with "regulation of securities exchanges, brokers, and dealers in securities" (Reed, O. Shedd, P. Morehead, J. & Pagnattaro, M. 2008). Under the auspices of this directive is the protection of individual investors from fraudulent or illegal securities transactions.

The means and rationale for prosecution of fraudulent securities dealers comes in the form of Section 10(b) and Rule 10b-5 which "declare that it is unlawful to use the mails or any other instrumentality of interstate commerce or any national securities exchange to defraud any person in connection with the purchase or sale of any security" (Reed, O. Shedd, P. Morehead, J. & Pagnattaro, M. 2008). The case of SEC v.

Zandford attempts to clarify language in Section 10(b) and Rule 10b-5 regarding the "meaning of the phrase 'in connection with' the sale of a security" (Reed, O. Shedd, P. Morehead, J. & Pagnattaro, M. 2008). Background The case involves securities broker Charles Zandford who in a fiduciary role as broker and manager of funds for investor William Wood, systematically over four years "withdrew funds from the Wood account and transferred it to accounts he controlled" (Reed, O. Shedd, P. Morehead, J. & Pagnattaro, M. 2008). Upon Mr.

Wood's death in 1991 the investment account which he had started held no balance. Zandford was criminally charged and convicted on 13 counts of wire fraud (Reed, O. Shedd, P. Morehead, J. & Pagnattaro, M. 2008); however, in addition the SEC filed a "civil complaint alleging violations of Section 10(b) and Rule 10b-5" (Reed, O. Shedd, P. Morehead, J. & Pagnattaro, M. 2008). A federal district court found in favor of the SEC, a ruling which was subsequently overturned by the Fourth Circuit Court of Appeals. The U.S.

Supreme Court then granted a writ of certiorari to determine the meaning of the language "in connection with the purchase or sale of any security" (Reed, O. Shedd, P. Morehead, J. & Pagnattaro, M. 2008). What argument did the security dealer make in seeking to have the civil complaint dismissed? Zandford's defense in this matter was particularly interesting as he does not deny his involvement in the "simple theft of cash or securities in an investment account" (Reed, O. Shedd, P. Morehead, J. & Pagnattaro, M. 2008).

For Zandford the issue is not that he sold the securities which he contends "were perfectly lawful," rather that the fraudulent activity of "misappropriation of the proceeds is desultory from the actual sale of the securities. If Zandford's argument is believable then the sales of securities would have been aligned with the investment strategy designed to secure principal and generate income. Zandford's contention falls squarely on.