SEC v. Capital Gains Research Bureau, Inc.

375 U.S. 180 (1963)


P brought an action against D. At the hearing on the application for a preliminary injunction, the following facts were established. D publishes an investment advisory service called A Capital Gains Report. The Report is mailed monthly to approximately 5,000 subscribers who each pay an annual subscription price of $18. Between March 15, 1960, and November 7, 1960, D, on six different occasions, purchased shares of a particular security shortly before recommending it in the Report for long-term investment. On each occasion, there was an increase in the market price and the volume of trading of the recommended security within a few days after the distribution of the Report. Immediately thereafter, D sold their shares of these securities at a profit. D did not disclose any aspect of these transactions to their clients or prospective clients. P requested a preliminary under the Investment Advisers Act of 1940. The District Court denied the request for a preliminary injunction, holding that the words 'fraud' and 'deceit' are used in the Investment Advisers Act of 1940 'in their technical sense' and P had failed to show an intent to injure clients or an actual loss of money to clients. The Court of Appeals accepted the limited construction of 'fraud' and 'deceit' and affirmed the denial of injunctive relief. The majority concluded that no violation of the Act could be found absent proof that 'any misstatements or false figures were contained in any of the bulletins'; or that 'the investment advice was unsound'; or that 'Ds were being bribed or paid to tout a stock contrary to their own beliefs'; or that 'these bulletins were a scheme to get rid of worthless stock'; or that the recommendations were made 'for the purpose of endeavoring artificially to raise the market so that [respondents] might unload [their] holdings at a profit.' The dissent urged a broad remedial construction of the statute which would encompass respondents' conduct. P appealed.