Legal Case Summary

We'll hear argument next this morning in case 12.79 Chadboard and Park v. Trois in the consolidated cases. Mr. Clement? Mr. Chief Justice and may it please the Court. The Stanford Ponzi scheme was a massive fraud, but that fraud clearly included material misrepresentations about transactions in covered securities. The complaints in this case bear that out. Planets allege specifically that their money was, there were misrepresentations about how their money would be invested in covered securities, that the misrepresentation was material, and that indeed the security of the underlying investments was the most important factor in securing plaintiff's own investments in the CD. I think there's some problem with whether or not this was covered securities, but I also think that's not in the case anymore. Am I correct on this latter assumption? Well, I certainly agree with you in the latter assumption, Your Honor, which is both lower courts decided this on the case that the complaint specifically referred to covered securities, specifically enough. I don't want to belabor the point because I don't think it's in the case, but I will say, I do think there's a reason that that was not a contested issue, because if you think about the securities that were referred to, strong multinational corporations, major international banks, those are companies that are traded on U.S. national exchanges. Also, if you get into the details of the record, I mean, if you want to look at something, Joint Appendix paid $7.46 is an attachment to the Willis complaint, and there there's a reference to the New York Stock Exchange, and it's a translated letter to investors, and you could read it more than one way, but I sure think the whole point of that paragraph is to lead the plaintiffs to think that there are stocks, there are buying an interest in stocks that we traded on the New York Stock Exchange particularly. So if I'm trying to get a home loan and they ask you what assets you have, and I list a couple of stocks, and in fact it's fraudulent, I don't own them, that's a covered transaction, that's a 10B5 violation. Well, I don't know, Mr. Chief Justice, that would depend on the answer to a question that I don't think the Court has to decide in this case, which is whether a reference to your stock holdings would be sufficient to come with it. Well, suppose you say you're going to pay off the loan by selling some stock holdings eventually. Yeah, I think that probably would be covered, Your Honor, and I don't think that's any great surprise. I mean, this Court held in a case called Rubin against the United States that if you pledge securities that are until the bank that they're valuable and they, in fact, aren't, that that's covered by the securities law, and that case it wasn't just in connection with, it was actually considered a constructive sale or transfer of the securities. They work covered securities, right? I mean, you're pledging covered securities to the bank and make a misrepresentation about them, right? Well, that's right. I'm just saying, though, that I don't think the fact that you can have a misrepresentation in connection with a loan application or something like that is all that surprising in the sense that the way that both 10B, 10B5 and Sluza are structured, the in connection with requirement can take something that might otherwise be plain fraud and if there's a misrepresentation in connection with a security or a covered security, that makes it security. I forget that my goodness are there cases where they brought such things. I mean, every state has laws that forbid fraud and mortgages are probably, and loans are probably made in the billions every year. All it takes is someone to say on his sheet of listing assets to have a covered security and say, don't worry, I'll hold these. I'll hold them. Or don't worry, I will sell this one and buy that one. Don't worry, I'll buy another one

. I won't put up a security, my sprinkler system. I will sell the sprinkler system and use it to buy a covered exchange. I guess if those fall within the securities laws, we would have expected to see billions of actions. Why not? I don't think in most of these cases anything is going to particularly turn on that. I also think I'm happy to hear that. You know that's what you think, but I'd need to know why you think it if there are billy, if I'm right, in my, what I just said. Because there are lots of cases where whether you can prosecute a fraud or a securities fraud is not going to make much difference. You can go at it either way. There are circumstances, there are really two things that are at issue here. One is the, so. The State Department of Justice, the State Department of Justice, tells me a case where the SEC has ever, there may be such cases. But what it's done is somebody simply tried to get alone and he put on that sheet of paper listing assets a covered security. And he said, I intend to keep it. Or he said, you know, I will buy some more, I'll sell it and buy some more. Or, you know, I'll put in your three things. Just list the case where they've ever prosecuted that as a securities fraud. Or private people have, after all, it's beneficial sometimes for private people. What are the cases? You're on, I don't know that there are cases directly on point, but let me be clear. Our theory here does not, by any means, necessarily have to extend to those holder situations. What is at issue here is not just a misrepresentation about holdings of securities. It is, there are misrepresentations about covered securities transactions. And more particularly, they are false promises to purchase covered securities for plaintiffs' benefit. Or is there a higher SEC cases that are brought under those circumstances? And as well, there should be, because when you sell something, whether it's a non-covered security or something else based on a misrepresentation about covered securities, you trigger the interest of the SEC and Slyssa in a distinct position. There's a opposed to the people reach a pre-nuptial agreement. And as part of the pre-nuptial agreement, they agree that in a year, one party to the marriage is going to sell as many shares of Google stock and buy a home with it. Is that covered by the securities laws now? I would think probably not at the end of the day, but I also would say that this is so far removed from that. I mean, first of all, how is it removed from that? Because it has the same structural features, which is it's a misrepresentation about what you're going to do with securities, but in fact, does not affect any securities trading, what it affects is a decision to do something else here to buy CDs, or in my example, to go get married. S. Well, respect your honor

. I think this Court has already crossed the bridge that you don't have to affect the specific transaction in which you are that the fraud is alleged to be associated with. So you have cases like O'Hagen, for example, where the actual transaction on the exchange is not solid with the fraud, and the victim of the fraud doesn't even trade. The holder of the confidential exchange. S. Well, in all of our cases, there's been something to say when somebody can ask the question, how has this affected a potential purchaser or seller in the market for the relevant securities? And here, there's nothing to say. Well, I disagree with the premise. Somebody, not necessarily the victim of the fraud, but somebody has to have had some transaction in the market. It's the kind of misrepresentation that would affect someone in making transactions in the covered market. How would this do that? S. Well, the only way in which there isn't that kind of transaction here is because the fraud was bigger. As we point out in the briefs, if you imagine that this was a thing where they said, well, if we're going to purchase multinational corporations, and instead they purchase domestic corporations, well, then there would be a transaction that would not have otherwise occurred on the market in domestic transactions that would have been perfectly analogous to the kind of normal transaction that took place in bank life or in Zanford on the market, and yet the fraud was sufficiently associated with this. And I don't think this Court wants to say that the only frauds that are not in connection with are the really big. Well, what is the case, what is the specific case, private or SEC, that comes the closest I grant you there is none direct, but it comes the closest to Justice Kagan's hypothetical if you marry me, I will sell my IBM stock. I don't think there's a particularly close case because A, I think the SEC has better things to do. And I think private is the SEC's closest case, but they may be better at answering this. What is their closest case to the horribles that they foresee if you lose? Well, I think probably I would start with the Richard Line case, which is cited on page 21 of their brief, and what that case shows is that you can have frauds in connection with covered securities that affect things that are either not covered securities, or in that case are nothing at all. Mr. Line was very clever. He took people who were interested in having their kids go to college and needed financial aid, and he said, I'll take your assets from you. And they'll be mine. I'm not going to give you anything in return. Not a covered security nothing, because the whole point of this is to get your assets off your books. And what I'll do is I'll invest those in the market, make a bunch of money, and in four years, when you're no longer worried about financial aid, I'll return your principal and some of the proceeds. Well, in Justice Kagan's hypothetical, and in some of the others, it seems that it's really irrelevant whether the assets in question are securities or some other asset. And it's also, and therefore, a for sure, it's irrelevant whether if it involves securities, whether they're covered or they're not covered. Now, would you be willing to concede that in that situation where it really, all you're talking about is an asset, it doesn't matter whether it's covered security or a rembland or gold that in that situation, 10B doesn't reach. I would agree with that, Justice Alito, but for a slightly different reason than you may be imagining, which is, I think one of the mistakes that can be made here is to ask in connection with do all the work. And the statute has multiple requirements, including a materiality requirement. And as your question suggests, if you're making a misrepresentation, and the whole point of it is to just tell somebody that, look, I have wealth or I have sort of assets, I don't know that the specific nature of them makes any difference

. But in a case like this, the whole point of this fraud was to take a non-covered security and to imbue it with some of the positive qualities of a covered security, the most important of which being liquidity. And if you look at sort of the underlying brochures here that were used to market this, that's really what this fraud was all about. These CDs were offered as being better than normal CDs, because we can get you your money whenever you need it. Q. Does it matter that there is not an allegation that there actually were any purchases or sales of covered securities? It says, the statute says, in connection with a purchase or sale of a covered security. And there weren't. I don't believe there's an allegation that they actually were purchased or sold. Does that matter? It doesn't matter, Your Honor, for the reason I indicated earlier, which is, you don't want to draw a line that basically says, look, if you buy different securities than you were supposed to or yourself fewer than you were supposed to, that's covered. But if you're made off and you go all the way and simply lie about the whole thing, and there never were any securities purchases at all, that that's somehow better. Q. What's your best case on that? Well, I think again, if you want to start with SEC adjudications, again on page 21, there's the jet adjudication where again, there was a broker dealer in that case, and they just made up the trades. They told their employer, look how I've done, look at these great trades, and they're just weren't any trades. And of course, all of the made-off cases or a substantial number of the made-off cases fit that categorization. It's actually not clear what the this case does, because at the end of the day, I think what's alleged is, either there were no purchases or substantially less purchases of covered securities than represented, nobody's really thought the difference between zero and substantially less made much of a difference in this case. And I would certainly, like I said, suggest that that's the right result, because whatever else is true, you can't somehow have a better fraud that's immune from the SEC just because you completely made the whole thing up. And there were no transactions at all. I meant there are, Zanford said, that in connection with doesn't include every common law fraud that happens to involve covered securities. So can you give us an example of what would not be covered, what fraud involving securities would not qualify as an connection with the sale or purchase of securities? Sure. Let me start with, I mean, with the hypothetical that Zanford used, because I think it helps illustrate why even if coincides with the test we satisfied here, would Zanford was really distinguishing his two cases. One where a broker dealer gets money from a potential client with the purest of intentions. And only at a later stage do they say, you know, I'm kind of below in my own payments, I need some money, I'm going to embezzle the funds. And Zanford said, in that context, the fraud and the security purchases are independent events. I don't think anybody would look at this case and say that the misrepresentations about covered securities purchases and the fraud were independent events. Nor would anybody say that this is in a case where from the very beginning there was an intent by Zanford not to make good on the promise to purchase covered securities on behalf of the plaintiffs. So this is like Zanford itself or Wolf Holdings itself where the fraudulent intent is there at the very moment the transaction takes place. And again, Wolf Holdings is another example where this Court says in Dictum that, well, you know, it would be one thing if they sold the option and only later independently decided that they weren't going to perform on the option. But if they had that intent all along, they clearly coincide. I assume that the purpose of the securities laws was to protect the purchasers and sellers of the covered securities. There is no purchaser or seller of a covered security involved here

. Well, there it's a purchaser of not covered securities who is being defrauded if anyone. Why would the Federal Securities Law protect that person? Well, a couple of things here, Honor. First of all, obviously, the Federal Securities Laws apply to non-covered securities as well as covered securities. So the real question here is going to be slewces coverage, because, as I said, 10B5 applies to non-covered securities. Second of all, this Court is well over the bridge about not requiring that it be the plaintiff's own purchases or sales that are what the inquiry focuses on. And that's been true in a whole line at this Court's base. It does have to be in a plaintiff's, but it has to be somebody's. Well, and here there are purchases of covered securities. They're the alleged purchases. They're the false promises that I'm in. And the existing purchases, right? Well, as I said, I don't think anything turns on it, but there actually were some purchases. And the only element of fraud in there was by the bank itself. There are the only ones whose purchases or sales could be said to have been affected by the misrepresentation. And of course, they can't make the claim on that basis. Right, Mr. Chief Justice. And that's been the case in other cases as well. The Security Transaction in Bankers Life. Now, the seller or the buyer of those transactions was affected directly by the fraud. In Zanford, there were security sales. Those security sales. But somebody else was, right? Sure. And the plaintiffs were clearly affected by this fraud not by the purchase or sale, right? They were affected, according to your theory, by the fact that, well, they told us there were these stocks. But the actual purchases and sales that fraud did not go to the purchases and sales of the covered securities. They went to the CDs. And again, that's true. And so many of the cases, damn it. It's the holders didn't purchase or sell it all, but that was okay. O'Hagen, the defrauded party was the company with the confidential information

. You're white light, Zanford. But what is the simplest formulation of your test if we were right to opinion your way? What the test would be? The simplest, narrowest way to decide this case is to say that when there is a misrepresentation and a false promise to purchase covered securities for the benefit of the plaintiffs, then the in connection with standard is required. If I may reserve my comment. Thank you, counsel. Mr. Goldenberg. Mr. Chief Justice, and may I please the Court, we agree with the narrow formulation that Mr. Komenjus gave the issue in this case is that it involves a false promise to purchase covered securities using the fraud victims' money in a way that they're told is going to benefit them. And that that is a classic securities fraud. There are quite a few of them. So, how broad is the word benefit? Because that's really what this case comes down to. Well, I think- assuming we accept that your narrow test which wouldn't address every situation that the other circuits have talked about, but let's wait for it to talk. I think it's clear that benefit isn't restricted merely to ownership of the securities themselves. And I would point- Well, that was the made-off situation, which was different than this one. Well, I don't think the made-off situation is particularly different from this one. In made-off, there were feeder funds that people were buying into that were noncovered securities. And what they were being told is that the money that was being put into the feeder fund was then going to go on and be used to purchase covered securities that they, themselves, were not going to have an ownership interest in, but that the benefit of those purchases was going to be passed back to them through this intermediate layer. But the case that he said, this is, I'm quite interested in your reaction to which cases that you've ever brought, this would, if you lose here, would prevent you from bringing, and line was the one that was mentioned. Yes, and I can- Oh, in line, there is a broker who says to a client, give me some money and I'll buy some securities on the exchange for you. And they gave them the money and he didn't. Well, that's directly related to a promise that is going to affect a purchase or sale of a security directly. He's promising someone to buy securities for his account. I don't think that that's this case. Well, actually, I think the line case is much more analogous to this case than your honor is suggesting because what was happening in line is that what the broker said to the victims was, you have children who are going to college, you don't want to have this money around because you want to be able to get financial aid. So give the money to me. And in several years, I'll give that money back to you with the money. You didn't say I will buy them or you and I can understand how a promise to buy securities for you is a promise to a person or a statement that will lead a person to take a position. Whether it's this plaintiff or someone in the world, it will lead someone in the world to take a position

. What your opponents say is that is what is present, not present here. Neither the person who is giving the money nor anyone else with the possible exception of the defendant is being led by this statement to take a position in a market for, by, against, sell, or even if you like, not sell or buy, hold, I'll throw that in. Your honor, just to return to line for a moment that I'd like to address sort of how the purposes of the securities laws are implicated in a situation like this, in line what the victims were told was that they were going to be given the money back after four years had passed with interest calculated above market rate. So they're not being told that they're going to be given whatever profit is made on securities transactions or as I read line, although it's slightly sparse on its facts, that they're going to be the owners of the securities or have an ownership interest in any way. And so I do think it's cases like line that are at the margins. Any way, line's not a case of ours, is it? No, it's not a case of any court, is it? It is an S. 20-year cases. Yes. Right. We don't have to agree with all of your cases, Billy. Certainly not. Although we do think that the SEC's expert view in a formal adjudication may warrant some difference. And before I put it, suppose I think that the correct test is something along the lines of what Justice Breyer just said, is this the kind of representation that could affect somebody, it doesn't have to be the victim of the fraud, it can be somebody else, but that could affect somebody's decision to buy or sell or hold covered securities. Can you satisfy that test? Yes, I think so, because I think that here there is a major effect on investor confidence and investor confidence specifically with respect to covered securities in several different ways. If people see that lies of the kind here, where someone is telling someone else, I'm going to buy covered securities and it's going to benefit you, are being made and those lies are, well, that's a fraud on the victims, then I think people are less likely to go to their broker and say, here's some money, go out on the market and buy me some securities. It's a lie that goes to the mechanism by which the securities markets operate, which is the purchases and sales. And it makes it less likely for people to be willing to believe that when they engage in purchases and sales, that something's really going to happen. Well, I mean, if you want to church and hurt a sermon that there are lots of people that are evil, maybe then you wouldn't invest. But I'm not. Well, but this is much more particular, again, to the mechanism by which the securities market operate. And I think another way to look at it is just to imagine the honest version of Stanford. If someone honestly said to CD purchasers, give me your money and I'm going to put it into covered securities and people invested in that scheme, then that would pump money into the covered securities markets. But now people are much less likely to invest in a scheme like that. Well, but nobody is suggesting that the SEC can't take action with respect to the non-covered securities. So, to the extent there's diminished confidence in the securities markets, the SEC has all the tools available to address that. The question is the different one under Sluza. Well, I think it's true that the SEC would continue to have tools, but I do think that this would inspire confidence to the extent that lawyers can bring these actions as opposed to having them preclude it, which is what you're arguing for. Well, sorry, interrupted. No, that's fine

. I think that this is a very particular effect on investor confidence and the integrity of the markets, which is one of the purposes of the securities laws. And with respect to Sluza, the purpose of Sluza is to try to stop people from going around the requirements of the PSLRA and some of the limitations in the Scorch's decisions. And I think that purpose is an issue here as well. I'd also like to talk a little bit if I could about the issue that was raised earlier about whether an actual purchaser sale needed to be made or whether a purported or intended purchaser sale is sufficient. And I think that practically from the moment that the 33 and 34 Act went into place, there's been a consensus in the lower courts, and the SEC has said this as well, that a purported or intended purchaser sale is sufficient. And it's for the reason that Mr. Komet gave that otherwise you have these home run, egregious frauds, where someone is, instead of saying, I'm going to buy this less risky thing and then buying a riskier thing, someone says, I'm going to buy securities and then doesn't buy them at all and it's gone with the money. And that that is something, a situation that has to be covered. Could I take you back to the test that you think we should apply here? The test that Mr. Komet articulated and that you agreed with seems to amount to the, to, to, to saying, when exactly what is alleged here is alleged that that's within, that's within 10B or 10B5. That's not, that helpful as a precedent going forward. Now, the test that Justice Breyer suggested whether something would affect investors confidence in the securities market. I don't know how we can, and you say yes, this would, that would be met here. I don't know how we can determine what, whether something, certainly of this nature, or maybe even further removed, would affect, would affect investor confidence. And somebody might read about this scheme in the paper and say, well, you know, there's a lot of, pancake, pancake going along with the sale of any kind of securities and CDs. I'm just going to keep cash under my mattress. How do we, how would we determine that? Well, I, I think it's for the reasons that I gave earlier, which is that this goes to the purchase sale mechanism and that we know that people have to have confidence in that order, in order for the securities markets to work. It may well be that people also, you know, lack confidence in others, but that is the thing that's the particular problem and the thing that the securities laws are aimed at. And I know, I know, conditioners are. The point of the point is, is not the problem of, of our figuring out these economic consequences, but the text of the statute, which says, in connection with the purchase or sale of one of the cover securities. There has been no purchase or sale here. Well, there's been a part of the purchase. It can be in connection with a purchase or sale that has never occurred. I mean, it could have read in connection with the purchase or sale or the promised purchase or sale or the contemplated purchase or sale, but it doesn't, it says, in connection with the purchase or sale. I don't know how you can make that stick to a situation where there has been no purchase or sale. That's true, Your Honor, but it also doesn't say the consummated purchase or sale. And so I think the purported intended consummated all those things are swept up in the text. And I think that's consistent with the way that you would use the phrase in ordinary life. If I were going to go to my real estate brokers to sell my house, I might gather up a bunch of documents, I might show up at the office at a certain time, in connection with the sale of my house, and even if the sale falls through and there is no consummated contract, I still done those things in connection with the sale

. And as I say, I think courts and the SEC have consistently taken that position, and if it weren't, if that weren't the case, then egregious frauds would go unreminied, and that would be a tremendous problem. Thank you, counsel. Mr. Goldstein? Mr. Chief Justice in May, please the Court, we ask you to write an opinion of farming, and it adopts the following rule, and that is that a false promise to purchase securities for oneself, in which no other person will have an interest, is not a material misrepresentation in connection with the purchase or sale of covered securities. The other side is asked to do adopt a rule that has never been advocated by the SEC and any other proceeding, it's never been advocated as I understand it in its briefs in this case, it's never been adopted by any court ever. And I think there are good reasons for that. Their theory is that what happened here is that there was a promise to buy covered securities that would be for the benefit of someone else that has two textual flaws, it doesn't comport with the purpose of the statute, and it would have extraordinary consequences. It doesn't conform to the text of the statute in either of two ways. Covered security, which is what the plaintiffs here purchase is a defined term. It is a security, but only the subset of securities that are traded on a national exchange and some other additions that involve, for example, mutual funds. And so Congress didn't say that it was in connection with the purchase or sale of a covered security if it was a covered security that someone else would get the benefit of. It is what has to be bought here is a stock, and instead what was bought here was a CD. As Mr. Clement says, this is a case of a massive fraud. He could well have said this is a case of a massive securities fraud, but it was not a case of a covered securities fraud. The plaintiffs here bought something that Congress specifically excluded from preclusion under Sluza. The second textual flaw in their position is that- I don't understand what the first textual flaw is. What is the jumping off point for this flaw? The jumping off point is that there is a defined term covered security. So Sluza only applies if there was a material misrepresentation in the purchase or sale of a covered security. Well, everybody, the case proceeds on the assumption that the CD's were not covered securities. The question is whether it's the in connection with requirement is met by the allegation which is interpreted to mean that there would be future purchases and sales of covered securities. So I'm not sure what you're getting out of the fact that covered securities is a defined term. Because Congress asked you or told the courts to focus on the question of what the product is that there was a misrepresentation in the course of the transaction, the course of the purchase or sale. And that is only a covered security. It is not some other product that has as a benefit an interest in a covered security. It doesn't say a misrepresentation about covered security. It says a misrepresentation in connection with. That's actually, I think, your honor, a really good point for us because the other side's argument up till the brief, excuse me, up until the oral argument, is that it was a misrepresentation about covered securities that would trigger sleusa

. The problem with their position is that what the court has always said when it talked about the definition of in connection with this really two things. It has to be flexible. We have to give the SEC the ability to deal with novel frauds. But because metaphysically everything is connected with everything else, we're going to have to draw a line. There's going to have to be some limit. And you've pointed out that it's not an easily administered one, but the bulwark, the one thing that stops 10B5 from getting completely out of control is that all of the frauds involved are ones that the court has recognized would have an effect on the regulated market that was true in O'Hagen, it was true in Zanford. Now, I realize that my friend from the Solicitor General's Office said today at the podium that they can imagine that this fraud would have an effect on the regulated market. They did say the opposite in their briefing in the case, their brief at the search stage, Kut said there was no possibility that there would be an effect on the regulated market. And so this, I imagine. Can you just give me the page for that? Yes, sir. I'll get it during the, it's quoted multiple times in our brief. But my colleagues will get it if you don't mind. And it's in the search age of about page 12, I think, but we'll, I'll have it for you in just a moment, please. And they said there is no, to quote it almost verbatim, there was no prospect that this fraud would have an effect on the covered securities market. The second textual flaw is that. And if that's wrong, you acknowledge you don't win. No, I do not, sir. Okay, sir. But what they were stating today. Well, it is a consent, as I understood, they seem to recognize, and if you were to read, for example, their brief in Zanford, they say that the sine qua non of their ability to determine as the enforcement authority here that something has, is in connection with the purchaser sale of the regulated security is whether it would have an effect on the regulated market. They wrote a brief to you saying that. And you really don't agree with that anyway? I think that that is their best hope, and I don't think they can satisfy it. We think their authority is narrower still. What is your position if the broker says give me $100,000, and I will buy covered securities, and then he just pockets it and flees? That is securities fraud, in our view, according to the SEC's administrative position. No court has ever said that, so that's Justice Scalia's point from the first half hour. If that is correct, if the SEC is correct about that, we still prevail, because what's for you, the covered securities, that's what the line case stands for, their brief in the. I don't see how this case is that much different. I think they say we were going to invest in CDs, and the CDs will be backed by purchases of securities that we will purchase for you. Okay

. So the critical difference, I think, is in the definition of purchase, and that was going to be the sectioned textual flaw that I was going to point out. And that is we can acknowledge that they would have a much stronger case in the hypothetical that you've described, if the covered securities are pledged to back the CDs, this happens, for example, in a margin account. It happens if there are lots of times someone will say, I intend to use your money to buy covered securities, to buy stocks. And I'm providing those stocks as security for the loan. The reason that securities fraud is the definition of a purchase includes pledging the stocks. That's really important, and it tracks with the courts holding that in connection with reaches as far as frauds that would have an effect on the regulated market. Imagine, if I were allowed to say, look, I'm going to buy covered securities, and you now hold an interest in them, an enforceable interest in the stocks. And if that were not securities fraud, the market couldn't function very well, because things like margin accounts, you could never have the confidence that you would have the protection of 10B5. The critical difference justice Kennedy is between two different cases. If this case, which is SIB says, look, among all of its many misrepresentations, I will take your money, and I intend to buy covered securities. That gets, you know, putting all the side of the difficulty of liquid assets versus covered securities, give them their best version of the representation here. But it was only buying it for itself. It did not pledge to sell the assets. It did not give the plaintiffs any interest in them. For example, the interest rate on the CDs was completely independent of the return on those covered securities. Kelsi Goldstein, I take it from what you set up to now that you were not defending the Fifth Circuit's test, called for a determination whether the misrepresentation is the heart or the crux of the complaint. Kelsi Goldstein, we do defend that rule. We do not think it's the best ground to decide the case. And I'll explain what I mean by that. The Fifth Circuit undertook to articulate a rule that would govern all cases in which someone purchased something that was supposedly invested in covered securities. So, including, for example, the made-off cases where there was securities fraud, made-off, falsely sold, interest in a fund. That's core securities fraud. S.I.B. never sold any securities at all. It only sold CDs. So if the Court believed that the Fifth Circuit was correct, that it was appropriate to decide all of these derivative investments, if I could, cases, then we think you need a flexible term like more than tangentially related. But we think this case stands on its own on the question of, look, if I promise, if I sell you something, and I say, I'm going to take the money and buy CDs for myself, and those CDs have a quality of being liquid. Now, you don't have an interest in the CDs. I'm not pledging them to you, so there's no purchase by you of a covered security. Then that's not securities fraud. And I did want to get- That's the line case where I'm told by the government you were trying to say, I know that Justice Scalia doesn't think it's important, but I do, okay? If someone tells me, sell your securities, give me the money, I will buy securities for myself, and give you a fixed rate of return later. I think that's in connection with the purchase and sale of securities, even though it's not legally purchased for my benefit. Okay. Two things about that, Justice Sotomayor. I will say that if what I think you were actually told from the podium is that it is unclear from the SEC's administrative opinion whether the persons who gave the money to the broker as an investment were actually given an interest in the securities. It's just not clear from that opinion. There's certainly no SEC holding. But to say that- Okay. Then the second thing I would say is the SEC has always been very clear to you that the key part of your hypothetical is that it's a broker. And the SEC has said to you repeatedly, and I will just give this to you from their Zanford Brief at page 23. There's a particularly strong connection between fraud and securities transactions when stock brokers, like Respondent, misappropriate securities and securities proceeds from brokerage accounts. The key feature is that you can understand why it is that the market can't function. If your stock broker is making promises about buying and selling securities, this is a bank. This is a bank that doesn't issue covered securities in any way because it's a foreign bank. It issues only the non-covered securities that come with specifically excluded. I think it's difficult to find. J. Fisk gets into his horse and carriage, drives up and down Wall Street and says, I'm going to buy Union Pacific. I'm going to buy Union Pacific, knowing that people will in fact all run out and buy it quickly and what he really intends to do is when it comes out he didn't, he's going to sell our, anyway, typical fraud. Now that's certainly covered. Yes, that's a market manipulation. So now here what we have is Mr. Stanford, I guess, saying to people, I'm going to buy securities, I'm going to buy securities, and maybe he didn't. Yes, just like J. Fisk. Sure

. Now, you don't have an interest in the CDs. I'm not pledging them to you, so there's no purchase by you of a covered security. Then that's not securities fraud. And I did want to get- That's the line case where I'm told by the government you were trying to say, I know that Justice Scalia doesn't think it's important, but I do, okay? If someone tells me, sell your securities, give me the money, I will buy securities for myself, and give you a fixed rate of return later. I think that's in connection with the purchase and sale of securities, even though it's not legally purchased for my benefit. Okay. Two things about that, Justice Sotomayor. I will say that if what I think you were actually told from the podium is that it is unclear from the SEC's administrative opinion whether the persons who gave the money to the broker as an investment were actually given an interest in the securities. It's just not clear from that opinion. There's certainly no SEC holding. But to say that- Okay. Then the second thing I would say is the SEC has always been very clear to you that the key part of your hypothetical is that it's a broker. And the SEC has said to you repeatedly, and I will just give this to you from their Zanford Brief at page 23. There's a particularly strong connection between fraud and securities transactions when stock brokers, like Respondent, misappropriate securities and securities proceeds from brokerage accounts. The key feature is that you can understand why it is that the market can't function. If your stock broker is making promises about buying and selling securities, this is a bank. This is a bank that doesn't issue covered securities in any way because it's a foreign bank. It issues only the non-covered securities that come with specifically excluded. I think it's difficult to find. J. Fisk gets into his horse and carriage, drives up and down Wall Street and says, I'm going to buy Union Pacific. I'm going to buy Union Pacific, knowing that people will in fact all run out and buy it quickly and what he really intends to do is when it comes out he didn't, he's going to sell our, anyway, typical fraud. Now that's certainly covered. Yes, that's a market manipulation. So now here what we have is Mr. Stanford, I guess, saying to people, I'm going to buy securities, I'm going to buy securities, and maybe he didn't. Yes, just like J. Fisk. Sure. Okay, so why does the first fall within in not the SEC? Because the first completely messes up the stock market and the second has nothing to do with it. In other words, if they had done exactly the same thing, but with an intent or or maybe and the effect of a purchaser of stock or a seller of stock reacting to the statement, then it affects it. Absolutely, because that's the second one. Where neither of those is present, it does. That's right. And if not, just- Did you go back to the Mayfac case because you portrayed it as investors joining into funds that directly held stock. And I thought that it was more complicated than that. I will play it out. That was not my intention. The Mayfac cases involved the following scenario, and there are diverse ones, and so I caution the course of court about trying to lay down a rule that will govern all those. So Mayfac engages in securities fraud. We covered securities fraud. He says, I have this fund. It is invested in stocks. That turns out to be completely untrue. So we know that Mayfac case in securities fraud. The Mayfac cases are about the next generation, the indirect purchases. And that is people who bought into a fund and the fund bought into Mayfac. Now those cases have been resolved on two separate grounds that may not be entirely consistent, neither one of which has any implications for our case. Theory number one, in an opinion by Judge Ray Koff, just a few weeks ago for the second circuit, he says, look, the indirect purchaser cases are covered by the allegation. And the core allegation in those cases is of covered securities fraud. It is that I was deceived. I lost my money, I should say, because Mayfac engaged in securities fraud. He was selling air. He wasn't selling anything at all. That's not this case. S.I.B

. Okay, so why does the first fall within in not the SEC? Because the first completely messes up the stock market and the second has nothing to do with it. In other words, if they had done exactly the same thing, but with an intent or or maybe and the effect of a purchaser of stock or a seller of stock reacting to the statement, then it affects it. Absolutely, because that's the second one. Where neither of those is present, it does. That's right. And if not, just- Did you go back to the Mayfac case because you portrayed it as investors joining into funds that directly held stock. And I thought that it was more complicated than that. I will play it out. That was not my intention. The Mayfac cases involved the following scenario, and there are diverse ones, and so I caution the course of court about trying to lay down a rule that will govern all those. So Mayfac engages in securities fraud. We covered securities fraud. He says, I have this fund. It is invested in stocks. That turns out to be completely untrue. So we know that Mayfac case in securities fraud. The Mayfac cases are about the next generation, the indirect purchases. And that is people who bought into a fund and the fund bought into Mayfac. Now those cases have been resolved on two separate grounds that may not be entirely consistent, neither one of which has any implications for our case. Theory number one, in an opinion by Judge Ray Koff, just a few weeks ago for the second circuit, he says, look, the indirect purchaser cases are covered by the allegation. And the core allegation in those cases is of covered securities fraud. It is that I was deceived. I lost my money, I should say, because Mayfac engaged in securities fraud. He was selling air. He wasn't selling anything at all. That's not this case. S.I.B. sold only non-covered securities. The second way they have been resolved is that you may be said to have, when you bought into, whether it's called the feeder funds, that instead, in turn, invested in Mayfac, you may well have purchased an interest in the Mayfac fund itself. And therefore, you were engaged effectively in the purchaser sale of covered securities. That is clearly on the other side of the line from this case. Nobody contends that we bought anything other than non-covered assets. Now I have tried to get to the hypotheticals that the Court put to the my friends in the first half hour and realize that these- Yes. About 30 seconds behind you. Yes. Nobody contends that you bought anything other than non-covered assets. Correct. I thought there was an allegation that you were purchasing and selling covered assets, the ones that were misrepresented to be backing the CDs. No, sir. They have not even made that argument. They say that it's enough to trigger slewza that S.I.B. bought something that was said in some sense, and I have no idea what the rule is to be for our benefit or to back our CDs. But the only- it is categorically the case that the only purchase or sale- Yes, I believe it's S.I.B. Yes, yes, sir. Now this is, of course, a significant step further than the line that already concerned some members of the Court, Justice Scalia, Justice Thomas and the late Chief Justice, dissented in O'Hagan, and this is a very significant move further than even that case because the emphasis of the S.I.C. in O'Hagan was that that kind of fraud would have a tremendous effect on the market if people didn't- it couldn't be confident that the other person on the other side of the trade had material non-cublic information. Now, returning to the hypotheticals that the Court put to my friends in the first half hour realized they're not hypotheticals. They are exactly why the S.I.C

. sold only non-covered securities. The second way they have been resolved is that you may be said to have, when you bought into, whether it's called the feeder funds, that instead, in turn, invested in Mayfac, you may well have purchased an interest in the Mayfac fund itself. And therefore, you were engaged effectively in the purchaser sale of covered securities. That is clearly on the other side of the line from this case. Nobody contends that we bought anything other than non-covered assets. Now I have tried to get to the hypotheticals that the Court put to the my friends in the first half hour and realize that these- Yes. About 30 seconds behind you. Yes. Nobody contends that you bought anything other than non-covered assets. Correct. I thought there was an allegation that you were purchasing and selling covered assets, the ones that were misrepresented to be backing the CDs. No, sir. They have not even made that argument. They say that it's enough to trigger slewza that S.I.B. bought something that was said in some sense, and I have no idea what the rule is to be for our benefit or to back our CDs. But the only- it is categorically the case that the only purchase or sale- Yes, I believe it's S.I.B. Yes, yes, sir. Now this is, of course, a significant step further than the line that already concerned some members of the Court, Justice Scalia, Justice Thomas and the late Chief Justice, dissented in O'Hagan, and this is a very significant move further than even that case because the emphasis of the S.I.C. in O'Hagan was that that kind of fraud would have a tremendous effect on the market if people didn't- it couldn't be confident that the other person on the other side of the trade had material non-cublic information. Now, returning to the hypotheticals that the Court put to my friends in the first half hour realized they're not hypotheticals. They are exactly why the S.I.C. is in the case. The S.I.C. doesn't administer slewza. It is concerned that a narrower reading of in connection with will affect its ability to administer the securities laws, but you put to the S.I.C. the question, okay, name a case that you've brought in the past 80 years, that you could not bring if the plaintiffs prevail here. Name a case that you hypothetically want to bring. That's exactly what I would like you to think about for a second because the last words of Mr. Goldenberger of the S.I.C. well, if you win, it's going to seriously hamper the S.I.C. in combating fraud. Of course, it wouldn't in a case like this because they aren't limited by covered securities. They can deal with any security and they did bring a case here. But they're worried about what you said that somehow this will narrow their authority and they quote line which is debatable, but assuming that it's debatable and the B.C.L. Mr. Clement will have a chance to answer this exact question. And so you are saying there are none and line is debatable and therefore it would not have hampered them in any case in the past, nor anyone were likely to think of in the future but for line which is somebody's decision over the S.I.C. and can be argued that it fits within your definition

. is in the case. The S.I.C. doesn't administer slewza. It is concerned that a narrower reading of in connection with will affect its ability to administer the securities laws, but you put to the S.I.C. the question, okay, name a case that you've brought in the past 80 years, that you could not bring if the plaintiffs prevail here. Name a case that you hypothetically want to bring. That's exactly what I would like you to think about for a second because the last words of Mr. Goldenberger of the S.I.C. well, if you win, it's going to seriously hamper the S.I.C. in combating fraud. Of course, it wouldn't in a case like this because they aren't limited by covered securities. They can deal with any security and they did bring a case here. But they're worried about what you said that somehow this will narrow their authority and they quote line which is debatable, but assuming that it's debatable and the B.C.L. Mr. Clement will have a chance to answer this exact question. And so you are saying there are none and line is debatable and therefore it would not have hampered them in any case in the past, nor anyone were likely to think of in the future but for line which is somebody's decision over the S.I.C. and can be argued that it fits within your definition. Is that really your answer or are we going to discover Mr. Clement coming up and saying you forgot about, if he does, it will be the first time. They filed three marriage briefs, three reprivileged briefs, the S.I.C. filed a search stage and make a brief, it filed a marriage and make a brief, it has argued orally in front of you and so far we haven't found a case. Now can I tell you that I can imagine a case that because of my rule the S.I.C. can't bring, I can and I think that they shouldn't be allowed to bring it. I'm not saying that our rule has no effect on them. I'm saying it does but it's the lending cases, it's the prenuptial cases, it's those things that hang over the economy like a loaded gun. That this is rather academic because S.I.C. wouldn't be a bar to them anyway, but then that's class actions. My point, Justice Ginsburg, I apologize is not that those are affected by that rule affects S.I.C. It affects the S.I.C.'s ability to bring a felony prosecution despite the rule of lenity on the basis that that securities fraud, the really understanding the consequence of this case, I'll admit to you that the effect on S.I.C. this is kind of a one-off case. They haven't identified any other cases like this under S.I.C

. Is that really your answer or are we going to discover Mr. Clement coming up and saying you forgot about, if he does, it will be the first time. They filed three marriage briefs, three reprivileged briefs, the S.I.C. filed a search stage and make a brief, it filed a marriage and make a brief, it has argued orally in front of you and so far we haven't found a case. Now can I tell you that I can imagine a case that because of my rule the S.I.C. can't bring, I can and I think that they shouldn't be allowed to bring it. I'm not saying that our rule has no effect on them. I'm saying it does but it's the lending cases, it's the prenuptial cases, it's those things that hang over the economy like a loaded gun. That this is rather academic because S.I.C. wouldn't be a bar to them anyway, but then that's class actions. My point, Justice Ginsburg, I apologize is not that those are affected by that rule affects S.I.C. It affects the S.I.C.'s ability to bring a felony prosecution despite the rule of lenity on the basis that that securities fraud, the really understanding the consequence of this case, I'll admit to you that the effect on S.I.C. this is kind of a one-off case. They haven't identified any other cases like this under S.I.C. So they are adopting a very broad reading of in connection to kind of kill a net. But the reason that the S.I.C. wants to do it is because it wants an extremely broad reading of in connection with the purchase or sale. They want to be able to bring a case in which someone is alleged to have purchased a non-security house issued alone on the basis of some statement about the liquidity of the fraudster. And that is never a case that's ever been brought before. And so it's true that we would prevent them from doing that, but that's a good thing, not a bad thing, they've had 80 years to say that they need that authority and they never have. If there is going to be a way in which we lose this case notwithstanding the foregoing, I think it's going to be Justice Alito's concern, can you articulate a narrower rule in favor of the petitioners that says it was the feature that they were covered securities that was essential to the fraud? I think we can say first that is not in the text of the statute, right? Those words don't appear. Well, all that's in the text of the statute is in connection with, which is open-ended. So I don't know what you're going to get from the text of the statute. Well, I do think that this was not in connection with the purchase or sale. Well, it certainly wasn't material to any purchase or sale. But the other thing, Justice Alito, is this notion that the feature of them being stocks was essential to the fraud would be true in, for example, alone. If I say to you, I want to get alone for $100,000, I promise to buy for myself stocks that I could sell to repay the loan. The only thing that was critical about them is that they were liquid. And remember, that's actually all that SIB said is that it had liquid assets. That's the only feature of it. And so if we're going to focus on that. Kagan, you're not contesting at this point. I think both courts below assumed that the assets included stocks that would be traded on the exchange. You're not making the argument is not necessary that maybe the portfolio included nothing that was traded on the exchange. We are not. I will say, however, that the other side has a serious problem of administrative ability of an opinion in its favor in the following way. Justice Ginsburg, the $7 billion in that assets that SIB claimed to own clearly included some stocks on the NYSE. I think that's perfectly fair. The question is how many? Nobody knows the answer to that. And if you are going to rule for them, the lower courts are going to face cases where a bank says we have liquid assets as well. Could I just be clear on your position on the issue of whether there has to be an actual purchaser sale? What is your answer? Yes, there must be or no, it's not essential

. So they are adopting a very broad reading of in connection to kind of kill a net. But the reason that the S.I.C. wants to do it is because it wants an extremely broad reading of in connection with the purchase or sale. They want to be able to bring a case in which someone is alleged to have purchased a non-security house issued alone on the basis of some statement about the liquidity of the fraudster. And that is never a case that's ever been brought before. And so it's true that we would prevent them from doing that, but that's a good thing, not a bad thing, they've had 80 years to say that they need that authority and they never have. If there is going to be a way in which we lose this case notwithstanding the foregoing, I think it's going to be Justice Alito's concern, can you articulate a narrower rule in favor of the petitioners that says it was the feature that they were covered securities that was essential to the fraud? I think we can say first that is not in the text of the statute, right? Those words don't appear. Well, all that's in the text of the statute is in connection with, which is open-ended. So I don't know what you're going to get from the text of the statute. Well, I do think that this was not in connection with the purchase or sale. Well, it certainly wasn't material to any purchase or sale. But the other thing, Justice Alito, is this notion that the feature of them being stocks was essential to the fraud would be true in, for example, alone. If I say to you, I want to get alone for $100,000, I promise to buy for myself stocks that I could sell to repay the loan. The only thing that was critical about them is that they were liquid. And remember, that's actually all that SIB said is that it had liquid assets. That's the only feature of it. And so if we're going to focus on that. Kagan, you're not contesting at this point. I think both courts below assumed that the assets included stocks that would be traded on the exchange. You're not making the argument is not necessary that maybe the portfolio included nothing that was traded on the exchange. We are not. I will say, however, that the other side has a serious problem of administrative ability of an opinion in its favor in the following way. Justice Ginsburg, the $7 billion in that assets that SIB claimed to own clearly included some stocks on the NYSE. I think that's perfectly fair. The question is how many? Nobody knows the answer to that. And if you are going to rule for them, the lower courts are going to face cases where a bank says we have liquid assets as well. Could I just be clear on your position on the issue of whether there has to be an actual purchaser sale? What is your answer? Yes, there must be or no, it's not essential. It is not essential to our position. If you agree with the SEC that there doesn't have to be a purchase or sale, we still easily win the case. No court has, I believe, that's only been resolved administratively. And so you would have to decide that in their favor in order to win the case. We are not giving up on that. You don't want us to decide the case on that basis. You don't want us to issue an opinion that says there has to be a purchaser sale and therefore a firm. That is not the ground on which we have pressed the case in front of you. I'm not trying to make it more complicated. It is illustrative of all the rules that they need you to adopt that no court has ever adopted. Remember, on page 21 of their brief, which is what you're being pointed to, as their best cases, they point to three administrative proceedings. No court decision of a district court court of appeals or this court. And it's only on the failure to purchase point. They have no cases in which the core features of this case are present. That is, you have a fraud that would not have an effect they had previously said on the regulated market whatsoever. And it's merely the fact that it's for the benefit of someone else. No court has ever adopted it. And picking up what this court said was so important in Sanford and O'Hagan is that it has not been the SEC's position in the past. I know they have said it when they stood up today, but they are the SEC assured you for decades. We have taken this position. It's been essential to our enforcement priorities. Under Section 10B, this case is completely different. Well, if we decided the case on that basis, it really would be a one-off. So the SEC today has told us this would have an effect on the securities market. But we would hold, we won't listen to that because at an earlier point in the case, as interpreted by you, they said it wouldn't. So that would be the holding where, you know, because the SEC previously said it wouldn't be an effect on the securities market. That's the reason for the decision. No, sir. My point is not that when the SEC says it, it becomes true

. It is not essential to our position. If you agree with the SEC that there doesn't have to be a purchase or sale, we still easily win the case. No court has, I believe, that's only been resolved administratively. And so you would have to decide that in their favor in order to win the case. We are not giving up on that. You don't want us to decide the case on that basis. You don't want us to issue an opinion that says there has to be a purchaser sale and therefore a firm. That is not the ground on which we have pressed the case in front of you. I'm not trying to make it more complicated. It is illustrative of all the rules that they need you to adopt that no court has ever adopted. Remember, on page 21 of their brief, which is what you're being pointed to, as their best cases, they point to three administrative proceedings. No court decision of a district court court of appeals or this court. And it's only on the failure to purchase point. They have no cases in which the core features of this case are present. That is, you have a fraud that would not have an effect they had previously said on the regulated market whatsoever. And it's merely the fact that it's for the benefit of someone else. No court has ever adopted it. And picking up what this court said was so important in Sanford and O'Hagan is that it has not been the SEC's position in the past. I know they have said it when they stood up today, but they are the SEC assured you for decades. We have taken this position. It's been essential to our enforcement priorities. Under Section 10B, this case is completely different. Well, if we decided the case on that basis, it really would be a one-off. So the SEC today has told us this would have an effect on the securities market. But we would hold, we won't listen to that because at an earlier point in the case, as interpreted by you, they said it wouldn't. So that would be the holding where, you know, because the SEC previously said it wouldn't be an effect on the securities market. That's the reason for the decision. No, sir. My point is not that when the SEC says it, it becomes true. We certainly don't agree with that. My point is that they haven't articulated, before they said the opposite, and today they haven't articulated anything that is more than the kind of metaphysical, go from here to here to here. And it asks too much when we start from a statute that carved these CDs out. Congress said we have this idea of a security. We have this idea from the National Securities Markets Improvements Act that the states regulate non-covered securities. And so we are going to say that the preclusive effect of Sluza does not reach these things like the CDs that we leave to regulation by the state. So this case clearly falls very easily within the text of Sluza as being not precluded. Then you ask, well, am I going to stretch the language of the statute to say, well, even though these are non-covered CDs, because securities were involved, I think Sluza should still apply. And in asking whether you should stretch the language, you would say, well, what's the point of the phrase in connection with? Why did Congress give it that kind of capacious reading, but didn't say fraud about securities or fraud involving securities that did say in connection with? And what your precedents have said over and over and over and what has been the dividing line that has prevented 10v5 from swallowing all fraud is that these are misrepresentations that affect the regulated market negatively. This fraud did not do that, if there are no further questions. Thank you, Council. Mr. Clement, you have four minutes. Thank you, Your Honor. A couple of points. First of all, it is just simply wrong that courts have not decided that a purported sale is covered the grip-o case from the 11th Circuit, which we cite in both our opening and rep library, is one of those cases. There are others consistent with the SEC's longstanding position. Is a case like that. There was a comment on this. In this Court that essentially says that as well. Would you, among all the Circuit Courts, which test would you adopt? I don't know that I would adopt any of them, Your Honor, because I think a lot of the make the same mistake, which is they get materiality and they sneak it into the in connection with requirements. Except Judge Sutton in the SEC Circuit. Yes, and I think if you were going to accept one test, I would ask you to have the seagull test from Judge Sutton. But I do think it's a mistake to have materiality or causation slip into the in connection with requirement. I'd like to start with Justice Kennedy's very apt observation that this fraud here is very similar to the paradigmatic securities fraud, where I simply, a broker simply says, give me your money, I'll buy securities and never does. And from the perspective of the defrauded party, it doesn't matter whether what they get in return is a statement that says they own some securities or a statement in a feeder fund that says they have an interest in the made-off fund or whether they get here a CD that they are told by the brochure that tells them what this is all about, that it's backed by the investments in the securities. They're all one and the same. Another thing I have to correct is it's simply not true that the returns here were not variable on the performance of the portfolio. It's not really well developed in the record here, but if you want to, we could lodge the brochures that are used to market these things

. We certainly don't agree with that. My point is that they haven't articulated, before they said the opposite, and today they haven't articulated anything that is more than the kind of metaphysical, go from here to here to here. And it asks too much when we start from a statute that carved these CDs out. Congress said we have this idea of a security. We have this idea from the National Securities Markets Improvements Act that the states regulate non-covered securities. And so we are going to say that the preclusive effect of Sluza does not reach these things like the CDs that we leave to regulation by the state. So this case clearly falls very easily within the text of Sluza as being not precluded. Then you ask, well, am I going to stretch the language of the statute to say, well, even though these are non-covered CDs, because securities were involved, I think Sluza should still apply. And in asking whether you should stretch the language, you would say, well, what's the point of the phrase in connection with? Why did Congress give it that kind of capacious reading, but didn't say fraud about securities or fraud involving securities that did say in connection with? And what your precedents have said over and over and over and what has been the dividing line that has prevented 10v5 from swallowing all fraud is that these are misrepresentations that affect the regulated market negatively. This fraud did not do that, if there are no further questions. Thank you, Council. Mr. Clement, you have four minutes. Thank you, Your Honor. A couple of points. First of all, it is just simply wrong that courts have not decided that a purported sale is covered the grip-o case from the 11th Circuit, which we cite in both our opening and rep library, is one of those cases. There are others consistent with the SEC's longstanding position. Is a case like that. There was a comment on this. In this Court that essentially says that as well. Would you, among all the Circuit Courts, which test would you adopt? I don't know that I would adopt any of them, Your Honor, because I think a lot of the make the same mistake, which is they get materiality and they sneak it into the in connection with requirements. Except Judge Sutton in the SEC Circuit. Yes, and I think if you were going to accept one test, I would ask you to have the seagull test from Judge Sutton. But I do think it's a mistake to have materiality or causation slip into the in connection with requirement. I'd like to start with Justice Kennedy's very apt observation that this fraud here is very similar to the paradigmatic securities fraud, where I simply, a broker simply says, give me your money, I'll buy securities and never does. And from the perspective of the defrauded party, it doesn't matter whether what they get in return is a statement that says they own some securities or a statement in a feeder fund that says they have an interest in the made-off fund or whether they get here a CD that they are told by the brochure that tells them what this is all about, that it's backed by the investments in the securities. They're all one and the same. Another thing I have to correct is it's simply not true that the returns here were not variable on the performance of the portfolio. It's not really well developed in the record here, but if you want to, we could lodge the brochures that are used to market these things. They tell these guys that their returns are variable and that they could lose all of their principal because of the investments in covered securities. A second thing is, of course, Mr. Goldstein correctly says there are particular problems when broker dealers lie about covered securities. Well, so too there are particular problems when an unregistered investment company lies about covered securities. And that's what their own complaint says was the reality of the Stanford Investment Bank, that it was an unregistered investment company. That's interesting for two reasons. One, if it were a registered investment company, all of its securities would be covered securities. That's another way you can get within the covered security bin. So this idea that Mr. Goldstein proclaims this is not a covered securities fraud is simply wrong. It is. It was material to this fraud to make misrepresentations about purchases of covered securities. Without those representations that we're going to take their money and we're going to reinvest it, again, words from their complaint, in covered securities, nobody's going to give their money to a bank in Antigua. The reason you give your money to a bank in Antigua is because you think it's backed by something more than a piece of paper and that something more was purchases of covered securities on the market. Even if you're right about that, Mr. Komet, they also said there was a representation that this is insured by Lloyds and there was another claim that they made. So even if you're right, wouldn't the answer be, okay, drop anything that has to do with interconnection with the sale of purchases of securities? We have, oh, we have a claim about the insurance and we also have a claim that both Antigua and the United States were heavily regulating those reforms. Why couldn't they have a complaint, shorn of the incorrect premise and based on the insurance and the regulated aspects? If I can answer, first of all, I think that Mr. Goldstein was quite prudent to not defend the Fifth Circuit's rationale. So the fact that there are other misrepresentations should not mean that a misrepresentation in connection with the purchaser sale of covered securities is somehow okay. Sluice makes clear that A misrepresentation is enough. Now the other thing I would say very briefly is that they may have an opportunity to try to replede that in a sense is the next case. I assure you that we would be arguing here where the essence of their claim is to hold the petitioner's secondarily liable for the underlying misrepresentations. They have to sort of take them all, but that's the next case. Thank you, Your Honor. Thank you, Council. The case is submitted.

We'll hear argument next this morning in case 12.79 Chadboard and Park v. Trois in the consolidated cases. Mr. Clement? Mr. Chief Justice and may it please the Court. The Stanford Ponzi scheme was a massive fraud, but that fraud clearly included material misrepresentations about transactions in covered securities. The complaints in this case bear that out. Planets allege specifically that their money was, there were misrepresentations about how their money would be invested in covered securities, that the misrepresentation was material, and that indeed the security of the underlying investments was the most important factor in securing plaintiff's own investments in the CD. I think there's some problem with whether or not this was covered securities, but I also think that's not in the case anymore. Am I correct on this latter assumption? Well, I certainly agree with you in the latter assumption, Your Honor, which is both lower courts decided this on the case that the complaint specifically referred to covered securities, specifically enough. I don't want to belabor the point because I don't think it's in the case, but I will say, I do think there's a reason that that was not a contested issue, because if you think about the securities that were referred to, strong multinational corporations, major international banks, those are companies that are traded on U.S. national exchanges. Also, if you get into the details of the record, I mean, if you want to look at something, Joint Appendix paid $7.46 is an attachment to the Willis complaint, and there there's a reference to the New York Stock Exchange, and it's a translated letter to investors, and you could read it more than one way, but I sure think the whole point of that paragraph is to lead the plaintiffs to think that there are stocks, there are buying an interest in stocks that we traded on the New York Stock Exchange particularly. So if I'm trying to get a home loan and they ask you what assets you have, and I list a couple of stocks, and in fact it's fraudulent, I don't own them, that's a covered transaction, that's a 10B5 violation. Well, I don't know, Mr. Chief Justice, that would depend on the answer to a question that I don't think the Court has to decide in this case, which is whether a reference to your stock holdings would be sufficient to come with it. Well, suppose you say you're going to pay off the loan by selling some stock holdings eventually. Yeah, I think that probably would be covered, Your Honor, and I don't think that's any great surprise. I mean, this Court held in a case called Rubin against the United States that if you pledge securities that are until the bank that they're valuable and they, in fact, aren't, that that's covered by the securities law, and that case it wasn't just in connection with, it was actually considered a constructive sale or transfer of the securities. They work covered securities, right? I mean, you're pledging covered securities to the bank and make a misrepresentation about them, right? Well, that's right. I'm just saying, though, that I don't think the fact that you can have a misrepresentation in connection with a loan application or something like that is all that surprising in the sense that the way that both 10B, 10B5 and Sluza are structured, the in connection with requirement can take something that might otherwise be plain fraud and if there's a misrepresentation in connection with a security or a covered security, that makes it security. I forget that my goodness are there cases where they brought such things. I mean, every state has laws that forbid fraud and mortgages are probably, and loans are probably made in the billions every year. All it takes is someone to say on his sheet of listing assets to have a covered security and say, don't worry, I'll hold these. I'll hold them. Or don't worry, I will sell this one and buy that one. Don't worry, I'll buy another one. I won't put up a security, my sprinkler system. I will sell the sprinkler system and use it to buy a covered exchange. I guess if those fall within the securities laws, we would have expected to see billions of actions. Why not? I don't think in most of these cases anything is going to particularly turn on that. I also think I'm happy to hear that. You know that's what you think, but I'd need to know why you think it if there are billy, if I'm right, in my, what I just said. Because there are lots of cases where whether you can prosecute a fraud or a securities fraud is not going to make much difference. You can go at it either way. There are circumstances, there are really two things that are at issue here. One is the, so. The State Department of Justice, the State Department of Justice, tells me a case where the SEC has ever, there may be such cases. But what it's done is somebody simply tried to get alone and he put on that sheet of paper listing assets a covered security. And he said, I intend to keep it. Or he said, you know, I will buy some more, I'll sell it and buy some more. Or, you know, I'll put in your three things. Just list the case where they've ever prosecuted that as a securities fraud. Or private people have, after all, it's beneficial sometimes for private people. What are the cases? You're on, I don't know that there are cases directly on point, but let me be clear. Our theory here does not, by any means, necessarily have to extend to those holder situations. What is at issue here is not just a misrepresentation about holdings of securities. It is, there are misrepresentations about covered securities transactions. And more particularly, they are false promises to purchase covered securities for plaintiffs' benefit. Or is there a higher SEC cases that are brought under those circumstances? And as well, there should be, because when you sell something, whether it's a non-covered security or something else based on a misrepresentation about covered securities, you trigger the interest of the SEC and Slyssa in a distinct position. There's a opposed to the people reach a pre-nuptial agreement. And as part of the pre-nuptial agreement, they agree that in a year, one party to the marriage is going to sell as many shares of Google stock and buy a home with it. Is that covered by the securities laws now? I would think probably not at the end of the day, but I also would say that this is so far removed from that. I mean, first of all, how is it removed from that? Because it has the same structural features, which is it's a misrepresentation about what you're going to do with securities, but in fact, does not affect any securities trading, what it affects is a decision to do something else here to buy CDs, or in my example, to go get married. S. Well, respect your honor. I think this Court has already crossed the bridge that you don't have to affect the specific transaction in which you are that the fraud is alleged to be associated with. So you have cases like O'Hagen, for example, where the actual transaction on the exchange is not solid with the fraud, and the victim of the fraud doesn't even trade. The holder of the confidential exchange. S. Well, in all of our cases, there's been something to say when somebody can ask the question, how has this affected a potential purchaser or seller in the market for the relevant securities? And here, there's nothing to say. Well, I disagree with the premise. Somebody, not necessarily the victim of the fraud, but somebody has to have had some transaction in the market. It's the kind of misrepresentation that would affect someone in making transactions in the covered market. How would this do that? S. Well, the only way in which there isn't that kind of transaction here is because the fraud was bigger. As we point out in the briefs, if you imagine that this was a thing where they said, well, if we're going to purchase multinational corporations, and instead they purchase domestic corporations, well, then there would be a transaction that would not have otherwise occurred on the market in domestic transactions that would have been perfectly analogous to the kind of normal transaction that took place in bank life or in Zanford on the market, and yet the fraud was sufficiently associated with this. And I don't think this Court wants to say that the only frauds that are not in connection with are the really big. Well, what is the case, what is the specific case, private or SEC, that comes the closest I grant you there is none direct, but it comes the closest to Justice Kagan's hypothetical if you marry me, I will sell my IBM stock. I don't think there's a particularly close case because A, I think the SEC has better things to do. And I think private is the SEC's closest case, but they may be better at answering this. What is their closest case to the horribles that they foresee if you lose? Well, I think probably I would start with the Richard Line case, which is cited on page 21 of their brief, and what that case shows is that you can have frauds in connection with covered securities that affect things that are either not covered securities, or in that case are nothing at all. Mr. Line was very clever. He took people who were interested in having their kids go to college and needed financial aid, and he said, I'll take your assets from you. And they'll be mine. I'm not going to give you anything in return. Not a covered security nothing, because the whole point of this is to get your assets off your books. And what I'll do is I'll invest those in the market, make a bunch of money, and in four years, when you're no longer worried about financial aid, I'll return your principal and some of the proceeds. Well, in Justice Kagan's hypothetical, and in some of the others, it seems that it's really irrelevant whether the assets in question are securities or some other asset. And it's also, and therefore, a for sure, it's irrelevant whether if it involves securities, whether they're covered or they're not covered. Now, would you be willing to concede that in that situation where it really, all you're talking about is an asset, it doesn't matter whether it's covered security or a rembland or gold that in that situation, 10B doesn't reach. I would agree with that, Justice Alito, but for a slightly different reason than you may be imagining, which is, I think one of the mistakes that can be made here is to ask in connection with do all the work. And the statute has multiple requirements, including a materiality requirement. And as your question suggests, if you're making a misrepresentation, and the whole point of it is to just tell somebody that, look, I have wealth or I have sort of assets, I don't know that the specific nature of them makes any difference. But in a case like this, the whole point of this fraud was to take a non-covered security and to imbue it with some of the positive qualities of a covered security, the most important of which being liquidity. And if you look at sort of the underlying brochures here that were used to market this, that's really what this fraud was all about. These CDs were offered as being better than normal CDs, because we can get you your money whenever you need it. Q. Does it matter that there is not an allegation that there actually were any purchases or sales of covered securities? It says, the statute says, in connection with a purchase or sale of a covered security. And there weren't. I don't believe there's an allegation that they actually were purchased or sold. Does that matter? It doesn't matter, Your Honor, for the reason I indicated earlier, which is, you don't want to draw a line that basically says, look, if you buy different securities than you were supposed to or yourself fewer than you were supposed to, that's covered. But if you're made off and you go all the way and simply lie about the whole thing, and there never were any securities purchases at all, that that's somehow better. Q. What's your best case on that? Well, I think again, if you want to start with SEC adjudications, again on page 21, there's the jet adjudication where again, there was a broker dealer in that case, and they just made up the trades. They told their employer, look how I've done, look at these great trades, and they're just weren't any trades. And of course, all of the made-off cases or a substantial number of the made-off cases fit that categorization. It's actually not clear what the this case does, because at the end of the day, I think what's alleged is, either there were no purchases or substantially less purchases of covered securities than represented, nobody's really thought the difference between zero and substantially less made much of a difference in this case. And I would certainly, like I said, suggest that that's the right result, because whatever else is true, you can't somehow have a better fraud that's immune from the SEC just because you completely made the whole thing up. And there were no transactions at all. I meant there are, Zanford said, that in connection with doesn't include every common law fraud that happens to involve covered securities. So can you give us an example of what would not be covered, what fraud involving securities would not qualify as an connection with the sale or purchase of securities? Sure. Let me start with, I mean, with the hypothetical that Zanford used, because I think it helps illustrate why even if coincides with the test we satisfied here, would Zanford was really distinguishing his two cases. One where a broker dealer gets money from a potential client with the purest of intentions. And only at a later stage do they say, you know, I'm kind of below in my own payments, I need some money, I'm going to embezzle the funds. And Zanford said, in that context, the fraud and the security purchases are independent events. I don't think anybody would look at this case and say that the misrepresentations about covered securities purchases and the fraud were independent events. Nor would anybody say that this is in a case where from the very beginning there was an intent by Zanford not to make good on the promise to purchase covered securities on behalf of the plaintiffs. So this is like Zanford itself or Wolf Holdings itself where the fraudulent intent is there at the very moment the transaction takes place. And again, Wolf Holdings is another example where this Court says in Dictum that, well, you know, it would be one thing if they sold the option and only later independently decided that they weren't going to perform on the option. But if they had that intent all along, they clearly coincide. I assume that the purpose of the securities laws was to protect the purchasers and sellers of the covered securities. There is no purchaser or seller of a covered security involved here. Well, there it's a purchaser of not covered securities who is being defrauded if anyone. Why would the Federal Securities Law protect that person? Well, a couple of things here, Honor. First of all, obviously, the Federal Securities Laws apply to non-covered securities as well as covered securities. So the real question here is going to be slewces coverage, because, as I said, 10B5 applies to non-covered securities. Second of all, this Court is well over the bridge about not requiring that it be the plaintiff's own purchases or sales that are what the inquiry focuses on. And that's been true in a whole line at this Court's base. It does have to be in a plaintiff's, but it has to be somebody's. Well, and here there are purchases of covered securities. They're the alleged purchases. They're the false promises that I'm in. And the existing purchases, right? Well, as I said, I don't think anything turns on it, but there actually were some purchases. And the only element of fraud in there was by the bank itself. There are the only ones whose purchases or sales could be said to have been affected by the misrepresentation. And of course, they can't make the claim on that basis. Right, Mr. Chief Justice. And that's been the case in other cases as well. The Security Transaction in Bankers Life. Now, the seller or the buyer of those transactions was affected directly by the fraud. In Zanford, there were security sales. Those security sales. But somebody else was, right? Sure. And the plaintiffs were clearly affected by this fraud not by the purchase or sale, right? They were affected, according to your theory, by the fact that, well, they told us there were these stocks. But the actual purchases and sales that fraud did not go to the purchases and sales of the covered securities. They went to the CDs. And again, that's true. And so many of the cases, damn it. It's the holders didn't purchase or sell it all, but that was okay. O'Hagen, the defrauded party was the company with the confidential information. You're white light, Zanford. But what is the simplest formulation of your test if we were right to opinion your way? What the test would be? The simplest, narrowest way to decide this case is to say that when there is a misrepresentation and a false promise to purchase covered securities for the benefit of the plaintiffs, then the in connection with standard is required. If I may reserve my comment. Thank you, counsel. Mr. Goldenberg. Mr. Chief Justice, and may I please the Court, we agree with the narrow formulation that Mr. Komenjus gave the issue in this case is that it involves a false promise to purchase covered securities using the fraud victims' money in a way that they're told is going to benefit them. And that that is a classic securities fraud. There are quite a few of them. So, how broad is the word benefit? Because that's really what this case comes down to. Well, I think- assuming we accept that your narrow test which wouldn't address every situation that the other circuits have talked about, but let's wait for it to talk. I think it's clear that benefit isn't restricted merely to ownership of the securities themselves. And I would point- Well, that was the made-off situation, which was different than this one. Well, I don't think the made-off situation is particularly different from this one. In made-off, there were feeder funds that people were buying into that were noncovered securities. And what they were being told is that the money that was being put into the feeder fund was then going to go on and be used to purchase covered securities that they, themselves, were not going to have an ownership interest in, but that the benefit of those purchases was going to be passed back to them through this intermediate layer. But the case that he said, this is, I'm quite interested in your reaction to which cases that you've ever brought, this would, if you lose here, would prevent you from bringing, and line was the one that was mentioned. Yes, and I can- Oh, in line, there is a broker who says to a client, give me some money and I'll buy some securities on the exchange for you. And they gave them the money and he didn't. Well, that's directly related to a promise that is going to affect a purchase or sale of a security directly. He's promising someone to buy securities for his account. I don't think that that's this case. Well, actually, I think the line case is much more analogous to this case than your honor is suggesting because what was happening in line is that what the broker said to the victims was, you have children who are going to college, you don't want to have this money around because you want to be able to get financial aid. So give the money to me. And in several years, I'll give that money back to you with the money. You didn't say I will buy them or you and I can understand how a promise to buy securities for you is a promise to a person or a statement that will lead a person to take a position. Whether it's this plaintiff or someone in the world, it will lead someone in the world to take a position. What your opponents say is that is what is present, not present here. Neither the person who is giving the money nor anyone else with the possible exception of the defendant is being led by this statement to take a position in a market for, by, against, sell, or even if you like, not sell or buy, hold, I'll throw that in. Your honor, just to return to line for a moment that I'd like to address sort of how the purposes of the securities laws are implicated in a situation like this, in line what the victims were told was that they were going to be given the money back after four years had passed with interest calculated above market rate. So they're not being told that they're going to be given whatever profit is made on securities transactions or as I read line, although it's slightly sparse on its facts, that they're going to be the owners of the securities or have an ownership interest in any way. And so I do think it's cases like line that are at the margins. Any way, line's not a case of ours, is it? No, it's not a case of any court, is it? It is an S. 20-year cases. Yes. Right. We don't have to agree with all of your cases, Billy. Certainly not. Although we do think that the SEC's expert view in a formal adjudication may warrant some difference. And before I put it, suppose I think that the correct test is something along the lines of what Justice Breyer just said, is this the kind of representation that could affect somebody, it doesn't have to be the victim of the fraud, it can be somebody else, but that could affect somebody's decision to buy or sell or hold covered securities. Can you satisfy that test? Yes, I think so, because I think that here there is a major effect on investor confidence and investor confidence specifically with respect to covered securities in several different ways. If people see that lies of the kind here, where someone is telling someone else, I'm going to buy covered securities and it's going to benefit you, are being made and those lies are, well, that's a fraud on the victims, then I think people are less likely to go to their broker and say, here's some money, go out on the market and buy me some securities. It's a lie that goes to the mechanism by which the securities markets operate, which is the purchases and sales. And it makes it less likely for people to be willing to believe that when they engage in purchases and sales, that something's really going to happen. Well, I mean, if you want to church and hurt a sermon that there are lots of people that are evil, maybe then you wouldn't invest. But I'm not. Well, but this is much more particular, again, to the mechanism by which the securities market operate. And I think another way to look at it is just to imagine the honest version of Stanford. If someone honestly said to CD purchasers, give me your money and I'm going to put it into covered securities and people invested in that scheme, then that would pump money into the covered securities markets. But now people are much less likely to invest in a scheme like that. Well, but nobody is suggesting that the SEC can't take action with respect to the non-covered securities. So, to the extent there's diminished confidence in the securities markets, the SEC has all the tools available to address that. The question is the different one under Sluza. Well, I think it's true that the SEC would continue to have tools, but I do think that this would inspire confidence to the extent that lawyers can bring these actions as opposed to having them preclude it, which is what you're arguing for. Well, sorry, interrupted. No, that's fine. I think that this is a very particular effect on investor confidence and the integrity of the markets, which is one of the purposes of the securities laws. And with respect to Sluza, the purpose of Sluza is to try to stop people from going around the requirements of the PSLRA and some of the limitations in the Scorch's decisions. And I think that purpose is an issue here as well. I'd also like to talk a little bit if I could about the issue that was raised earlier about whether an actual purchaser sale needed to be made or whether a purported or intended purchaser sale is sufficient. And I think that practically from the moment that the 33 and 34 Act went into place, there's been a consensus in the lower courts, and the SEC has said this as well, that a purported or intended purchaser sale is sufficient. And it's for the reason that Mr. Komet gave that otherwise you have these home run, egregious frauds, where someone is, instead of saying, I'm going to buy this less risky thing and then buying a riskier thing, someone says, I'm going to buy securities and then doesn't buy them at all and it's gone with the money. And that that is something, a situation that has to be covered. Could I take you back to the test that you think we should apply here? The test that Mr. Komet articulated and that you agreed with seems to amount to the, to, to, to saying, when exactly what is alleged here is alleged that that's within, that's within 10B or 10B5. That's not, that helpful as a precedent going forward. Now, the test that Justice Breyer suggested whether something would affect investors confidence in the securities market. I don't know how we can, and you say yes, this would, that would be met here. I don't know how we can determine what, whether something, certainly of this nature, or maybe even further removed, would affect, would affect investor confidence. And somebody might read about this scheme in the paper and say, well, you know, there's a lot of, pancake, pancake going along with the sale of any kind of securities and CDs. I'm just going to keep cash under my mattress. How do we, how would we determine that? Well, I, I think it's for the reasons that I gave earlier, which is that this goes to the purchase sale mechanism and that we know that people have to have confidence in that order, in order for the securities markets to work. It may well be that people also, you know, lack confidence in others, but that is the thing that's the particular problem and the thing that the securities laws are aimed at. And I know, I know, conditioners are. The point of the point is, is not the problem of, of our figuring out these economic consequences, but the text of the statute, which says, in connection with the purchase or sale of one of the cover securities. There has been no purchase or sale here. Well, there's been a part of the purchase. It can be in connection with a purchase or sale that has never occurred. I mean, it could have read in connection with the purchase or sale or the promised purchase or sale or the contemplated purchase or sale, but it doesn't, it says, in connection with the purchase or sale. I don't know how you can make that stick to a situation where there has been no purchase or sale. That's true, Your Honor, but it also doesn't say the consummated purchase or sale. And so I think the purported intended consummated all those things are swept up in the text. And I think that's consistent with the way that you would use the phrase in ordinary life. If I were going to go to my real estate brokers to sell my house, I might gather up a bunch of documents, I might show up at the office at a certain time, in connection with the sale of my house, and even if the sale falls through and there is no consummated contract, I still done those things in connection with the sale. And as I say, I think courts and the SEC have consistently taken that position, and if it weren't, if that weren't the case, then egregious frauds would go unreminied, and that would be a tremendous problem. Thank you, counsel. Mr. Goldstein? Mr. Chief Justice in May, please the Court, we ask you to write an opinion of farming, and it adopts the following rule, and that is that a false promise to purchase securities for oneself, in which no other person will have an interest, is not a material misrepresentation in connection with the purchase or sale of covered securities. The other side is asked to do adopt a rule that has never been advocated by the SEC and any other proceeding, it's never been advocated as I understand it in its briefs in this case, it's never been adopted by any court ever. And I think there are good reasons for that. Their theory is that what happened here is that there was a promise to buy covered securities that would be for the benefit of someone else that has two textual flaws, it doesn't comport with the purpose of the statute, and it would have extraordinary consequences. It doesn't conform to the text of the statute in either of two ways. Covered security, which is what the plaintiffs here purchase is a defined term. It is a security, but only the subset of securities that are traded on a national exchange and some other additions that involve, for example, mutual funds. And so Congress didn't say that it was in connection with the purchase or sale of a covered security if it was a covered security that someone else would get the benefit of. It is what has to be bought here is a stock, and instead what was bought here was a CD. As Mr. Clement says, this is a case of a massive fraud. He could well have said this is a case of a massive securities fraud, but it was not a case of a covered securities fraud. The plaintiffs here bought something that Congress specifically excluded from preclusion under Sluza. The second textual flaw in their position is that- I don't understand what the first textual flaw is. What is the jumping off point for this flaw? The jumping off point is that there is a defined term covered security. So Sluza only applies if there was a material misrepresentation in the purchase or sale of a covered security. Well, everybody, the case proceeds on the assumption that the CD's were not covered securities. The question is whether it's the in connection with requirement is met by the allegation which is interpreted to mean that there would be future purchases and sales of covered securities. So I'm not sure what you're getting out of the fact that covered securities is a defined term. Because Congress asked you or told the courts to focus on the question of what the product is that there was a misrepresentation in the course of the transaction, the course of the purchase or sale. And that is only a covered security. It is not some other product that has as a benefit an interest in a covered security. It doesn't say a misrepresentation about covered security. It says a misrepresentation in connection with. That's actually, I think, your honor, a really good point for us because the other side's argument up till the brief, excuse me, up until the oral argument, is that it was a misrepresentation about covered securities that would trigger sleusa. The problem with their position is that what the court has always said when it talked about the definition of in connection with this really two things. It has to be flexible. We have to give the SEC the ability to deal with novel frauds. But because metaphysically everything is connected with everything else, we're going to have to draw a line. There's going to have to be some limit. And you've pointed out that it's not an easily administered one, but the bulwark, the one thing that stops 10B5 from getting completely out of control is that all of the frauds involved are ones that the court has recognized would have an effect on the regulated market that was true in O'Hagen, it was true in Zanford. Now, I realize that my friend from the Solicitor General's Office said today at the podium that they can imagine that this fraud would have an effect on the regulated market. They did say the opposite in their briefing in the case, their brief at the search stage, Kut said there was no possibility that there would be an effect on the regulated market. And so this, I imagine. Can you just give me the page for that? Yes, sir. I'll get it during the, it's quoted multiple times in our brief. But my colleagues will get it if you don't mind. And it's in the search age of about page 12, I think, but we'll, I'll have it for you in just a moment, please. And they said there is no, to quote it almost verbatim, there was no prospect that this fraud would have an effect on the covered securities market. The second textual flaw is that. And if that's wrong, you acknowledge you don't win. No, I do not, sir. Okay, sir. But what they were stating today. Well, it is a consent, as I understood, they seem to recognize, and if you were to read, for example, their brief in Zanford, they say that the sine qua non of their ability to determine as the enforcement authority here that something has, is in connection with the purchaser sale of the regulated security is whether it would have an effect on the regulated market. They wrote a brief to you saying that. And you really don't agree with that anyway? I think that that is their best hope, and I don't think they can satisfy it. We think their authority is narrower still. What is your position if the broker says give me $100,000, and I will buy covered securities, and then he just pockets it and flees? That is securities fraud, in our view, according to the SEC's administrative position. No court has ever said that, so that's Justice Scalia's point from the first half hour. If that is correct, if the SEC is correct about that, we still prevail, because what's for you, the covered securities, that's what the line case stands for, their brief in the. I don't see how this case is that much different. I think they say we were going to invest in CDs, and the CDs will be backed by purchases of securities that we will purchase for you. Okay. So the critical difference, I think, is in the definition of purchase, and that was going to be the sectioned textual flaw that I was going to point out. And that is we can acknowledge that they would have a much stronger case in the hypothetical that you've described, if the covered securities are pledged to back the CDs, this happens, for example, in a margin account. It happens if there are lots of times someone will say, I intend to use your money to buy covered securities, to buy stocks. And I'm providing those stocks as security for the loan. The reason that securities fraud is the definition of a purchase includes pledging the stocks. That's really important, and it tracks with the courts holding that in connection with reaches as far as frauds that would have an effect on the regulated market. Imagine, if I were allowed to say, look, I'm going to buy covered securities, and you now hold an interest in them, an enforceable interest in the stocks. And if that were not securities fraud, the market couldn't function very well, because things like margin accounts, you could never have the confidence that you would have the protection of 10B5. The critical difference justice Kennedy is between two different cases. If this case, which is SIB says, look, among all of its many misrepresentations, I will take your money, and I intend to buy covered securities. That gets, you know, putting all the side of the difficulty of liquid assets versus covered securities, give them their best version of the representation here. But it was only buying it for itself. It did not pledge to sell the assets. It did not give the plaintiffs any interest in them. For example, the interest rate on the CDs was completely independent of the return on those covered securities. Kelsi Goldstein, I take it from what you set up to now that you were not defending the Fifth Circuit's test, called for a determination whether the misrepresentation is the heart or the crux of the complaint. Kelsi Goldstein, we do defend that rule. We do not think it's the best ground to decide the case. And I'll explain what I mean by that. The Fifth Circuit undertook to articulate a rule that would govern all cases in which someone purchased something that was supposedly invested in covered securities. So, including, for example, the made-off cases where there was securities fraud, made-off, falsely sold, interest in a fund. That's core securities fraud. S.I.B. never sold any securities at all. It only sold CDs. So if the Court believed that the Fifth Circuit was correct, that it was appropriate to decide all of these derivative investments, if I could, cases, then we think you need a flexible term like more than tangentially related. But we think this case stands on its own on the question of, look, if I promise, if I sell you something, and I say, I'm going to take the money and buy CDs for myself, and those CDs have a quality of being liquid. Now, you don't have an interest in the CDs. I'm not pledging them to you, so there's no purchase by you of a covered security. Then that's not securities fraud. And I did want to get- That's the line case where I'm told by the government you were trying to say, I know that Justice Scalia doesn't think it's important, but I do, okay? If someone tells me, sell your securities, give me the money, I will buy securities for myself, and give you a fixed rate of return later. I think that's in connection with the purchase and sale of securities, even though it's not legally purchased for my benefit. Okay. Two things about that, Justice Sotomayor. I will say that if what I think you were actually told from the podium is that it is unclear from the SEC's administrative opinion whether the persons who gave the money to the broker as an investment were actually given an interest in the securities. It's just not clear from that opinion. There's certainly no SEC holding. But to say that- Okay. Then the second thing I would say is the SEC has always been very clear to you that the key part of your hypothetical is that it's a broker. And the SEC has said to you repeatedly, and I will just give this to you from their Zanford Brief at page 23. There's a particularly strong connection between fraud and securities transactions when stock brokers, like Respondent, misappropriate securities and securities proceeds from brokerage accounts. The key feature is that you can understand why it is that the market can't function. If your stock broker is making promises about buying and selling securities, this is a bank. This is a bank that doesn't issue covered securities in any way because it's a foreign bank. It issues only the non-covered securities that come with specifically excluded. I think it's difficult to find. J. Fisk gets into his horse and carriage, drives up and down Wall Street and says, I'm going to buy Union Pacific. I'm going to buy Union Pacific, knowing that people will in fact all run out and buy it quickly and what he really intends to do is when it comes out he didn't, he's going to sell our, anyway, typical fraud. Now that's certainly covered. Yes, that's a market manipulation. So now here what we have is Mr. Stanford, I guess, saying to people, I'm going to buy securities, I'm going to buy securities, and maybe he didn't. Yes, just like J. Fisk. Sure. Okay, so why does the first fall within in not the SEC? Because the first completely messes up the stock market and the second has nothing to do with it. In other words, if they had done exactly the same thing, but with an intent or or maybe and the effect of a purchaser of stock or a seller of stock reacting to the statement, then it affects it. Absolutely, because that's the second one. Where neither of those is present, it does. That's right. And if not, just- Did you go back to the Mayfac case because you portrayed it as investors joining into funds that directly held stock. And I thought that it was more complicated than that. I will play it out. That was not my intention. The Mayfac cases involved the following scenario, and there are diverse ones, and so I caution the course of court about trying to lay down a rule that will govern all those. So Mayfac engages in securities fraud. We covered securities fraud. He says, I have this fund. It is invested in stocks. That turns out to be completely untrue. So we know that Mayfac case in securities fraud. The Mayfac cases are about the next generation, the indirect purchases. And that is people who bought into a fund and the fund bought into Mayfac. Now those cases have been resolved on two separate grounds that may not be entirely consistent, neither one of which has any implications for our case. Theory number one, in an opinion by Judge Ray Koff, just a few weeks ago for the second circuit, he says, look, the indirect purchaser cases are covered by the allegation. And the core allegation in those cases is of covered securities fraud. It is that I was deceived. I lost my money, I should say, because Mayfac engaged in securities fraud. He was selling air. He wasn't selling anything at all. That's not this case. S.I.B. sold only non-covered securities. The second way they have been resolved is that you may be said to have, when you bought into, whether it's called the feeder funds, that instead, in turn, invested in Mayfac, you may well have purchased an interest in the Mayfac fund itself. And therefore, you were engaged effectively in the purchaser sale of covered securities. That is clearly on the other side of the line from this case. Nobody contends that we bought anything other than non-covered assets. Now I have tried to get to the hypotheticals that the Court put to the my friends in the first half hour and realize that these- Yes. About 30 seconds behind you. Yes. Nobody contends that you bought anything other than non-covered assets. Correct. I thought there was an allegation that you were purchasing and selling covered assets, the ones that were misrepresented to be backing the CDs. No, sir. They have not even made that argument. They say that it's enough to trigger slewza that S.I.B. bought something that was said in some sense, and I have no idea what the rule is to be for our benefit or to back our CDs. But the only- it is categorically the case that the only purchase or sale- Yes, I believe it's S.I.B. Yes, yes, sir. Now this is, of course, a significant step further than the line that already concerned some members of the Court, Justice Scalia, Justice Thomas and the late Chief Justice, dissented in O'Hagan, and this is a very significant move further than even that case because the emphasis of the S.I.C. in O'Hagan was that that kind of fraud would have a tremendous effect on the market if people didn't- it couldn't be confident that the other person on the other side of the trade had material non-cublic information. Now, returning to the hypotheticals that the Court put to my friends in the first half hour realized they're not hypotheticals. They are exactly why the S.I.C. is in the case. The S.I.C. doesn't administer slewza. It is concerned that a narrower reading of in connection with will affect its ability to administer the securities laws, but you put to the S.I.C. the question, okay, name a case that you've brought in the past 80 years, that you could not bring if the plaintiffs prevail here. Name a case that you hypothetically want to bring. That's exactly what I would like you to think about for a second because the last words of Mr. Goldenberger of the S.I.C. well, if you win, it's going to seriously hamper the S.I.C. in combating fraud. Of course, it wouldn't in a case like this because they aren't limited by covered securities. They can deal with any security and they did bring a case here. But they're worried about what you said that somehow this will narrow their authority and they quote line which is debatable, but assuming that it's debatable and the B.C.L. Mr. Clement will have a chance to answer this exact question. And so you are saying there are none and line is debatable and therefore it would not have hampered them in any case in the past, nor anyone were likely to think of in the future but for line which is somebody's decision over the S.I.C. and can be argued that it fits within your definition. Is that really your answer or are we going to discover Mr. Clement coming up and saying you forgot about, if he does, it will be the first time. They filed three marriage briefs, three reprivileged briefs, the S.I.C. filed a search stage and make a brief, it filed a marriage and make a brief, it has argued orally in front of you and so far we haven't found a case. Now can I tell you that I can imagine a case that because of my rule the S.I.C. can't bring, I can and I think that they shouldn't be allowed to bring it. I'm not saying that our rule has no effect on them. I'm saying it does but it's the lending cases, it's the prenuptial cases, it's those things that hang over the economy like a loaded gun. That this is rather academic because S.I.C. wouldn't be a bar to them anyway, but then that's class actions. My point, Justice Ginsburg, I apologize is not that those are affected by that rule affects S.I.C. It affects the S.I.C.'s ability to bring a felony prosecution despite the rule of lenity on the basis that that securities fraud, the really understanding the consequence of this case, I'll admit to you that the effect on S.I.C. this is kind of a one-off case. They haven't identified any other cases like this under S.I.C. So they are adopting a very broad reading of in connection to kind of kill a net. But the reason that the S.I.C. wants to do it is because it wants an extremely broad reading of in connection with the purchase or sale. They want to be able to bring a case in which someone is alleged to have purchased a non-security house issued alone on the basis of some statement about the liquidity of the fraudster. And that is never a case that's ever been brought before. And so it's true that we would prevent them from doing that, but that's a good thing, not a bad thing, they've had 80 years to say that they need that authority and they never have. If there is going to be a way in which we lose this case notwithstanding the foregoing, I think it's going to be Justice Alito's concern, can you articulate a narrower rule in favor of the petitioners that says it was the feature that they were covered securities that was essential to the fraud? I think we can say first that is not in the text of the statute, right? Those words don't appear. Well, all that's in the text of the statute is in connection with, which is open-ended. So I don't know what you're going to get from the text of the statute. Well, I do think that this was not in connection with the purchase or sale. Well, it certainly wasn't material to any purchase or sale. But the other thing, Justice Alito, is this notion that the feature of them being stocks was essential to the fraud would be true in, for example, alone. If I say to you, I want to get alone for $100,000, I promise to buy for myself stocks that I could sell to repay the loan. The only thing that was critical about them is that they were liquid. And remember, that's actually all that SIB said is that it had liquid assets. That's the only feature of it. And so if we're going to focus on that. Kagan, you're not contesting at this point. I think both courts below assumed that the assets included stocks that would be traded on the exchange. You're not making the argument is not necessary that maybe the portfolio included nothing that was traded on the exchange. We are not. I will say, however, that the other side has a serious problem of administrative ability of an opinion in its favor in the following way. Justice Ginsburg, the $7 billion in that assets that SIB claimed to own clearly included some stocks on the NYSE. I think that's perfectly fair. The question is how many? Nobody knows the answer to that. And if you are going to rule for them, the lower courts are going to face cases where a bank says we have liquid assets as well. Could I just be clear on your position on the issue of whether there has to be an actual purchaser sale? What is your answer? Yes, there must be or no, it's not essential. It is not essential to our position. If you agree with the SEC that there doesn't have to be a purchase or sale, we still easily win the case. No court has, I believe, that's only been resolved administratively. And so you would have to decide that in their favor in order to win the case. We are not giving up on that. You don't want us to decide the case on that basis. You don't want us to issue an opinion that says there has to be a purchaser sale and therefore a firm. That is not the ground on which we have pressed the case in front of you. I'm not trying to make it more complicated. It is illustrative of all the rules that they need you to adopt that no court has ever adopted. Remember, on page 21 of their brief, which is what you're being pointed to, as their best cases, they point to three administrative proceedings. No court decision of a district court court of appeals or this court. And it's only on the failure to purchase point. They have no cases in which the core features of this case are present. That is, you have a fraud that would not have an effect they had previously said on the regulated market whatsoever. And it's merely the fact that it's for the benefit of someone else. No court has ever adopted it. And picking up what this court said was so important in Sanford and O'Hagan is that it has not been the SEC's position in the past. I know they have said it when they stood up today, but they are the SEC assured you for decades. We have taken this position. It's been essential to our enforcement priorities. Under Section 10B, this case is completely different. Well, if we decided the case on that basis, it really would be a one-off. So the SEC today has told us this would have an effect on the securities market. But we would hold, we won't listen to that because at an earlier point in the case, as interpreted by you, they said it wouldn't. So that would be the holding where, you know, because the SEC previously said it wouldn't be an effect on the securities market. That's the reason for the decision. No, sir. My point is not that when the SEC says it, it becomes true. We certainly don't agree with that. My point is that they haven't articulated, before they said the opposite, and today they haven't articulated anything that is more than the kind of metaphysical, go from here to here to here. And it asks too much when we start from a statute that carved these CDs out. Congress said we have this idea of a security. We have this idea from the National Securities Markets Improvements Act that the states regulate non-covered securities. And so we are going to say that the preclusive effect of Sluza does not reach these things like the CDs that we leave to regulation by the state. So this case clearly falls very easily within the text of Sluza as being not precluded. Then you ask, well, am I going to stretch the language of the statute to say, well, even though these are non-covered CDs, because securities were involved, I think Sluza should still apply. And in asking whether you should stretch the language, you would say, well, what's the point of the phrase in connection with? Why did Congress give it that kind of capacious reading, but didn't say fraud about securities or fraud involving securities that did say in connection with? And what your precedents have said over and over and over and what has been the dividing line that has prevented 10v5 from swallowing all fraud is that these are misrepresentations that affect the regulated market negatively. This fraud did not do that, if there are no further questions. Thank you, Council. Mr. Clement, you have four minutes. Thank you, Your Honor. A couple of points. First of all, it is just simply wrong that courts have not decided that a purported sale is covered the grip-o case from the 11th Circuit, which we cite in both our opening and rep library, is one of those cases. There are others consistent with the SEC's longstanding position. Is a case like that. There was a comment on this. In this Court that essentially says that as well. Would you, among all the Circuit Courts, which test would you adopt? I don't know that I would adopt any of them, Your Honor, because I think a lot of the make the same mistake, which is they get materiality and they sneak it into the in connection with requirements. Except Judge Sutton in the SEC Circuit. Yes, and I think if you were going to accept one test, I would ask you to have the seagull test from Judge Sutton. But I do think it's a mistake to have materiality or causation slip into the in connection with requirement. I'd like to start with Justice Kennedy's very apt observation that this fraud here is very similar to the paradigmatic securities fraud, where I simply, a broker simply says, give me your money, I'll buy securities and never does. And from the perspective of the defrauded party, it doesn't matter whether what they get in return is a statement that says they own some securities or a statement in a feeder fund that says they have an interest in the made-off fund or whether they get here a CD that they are told by the brochure that tells them what this is all about, that it's backed by the investments in the securities. They're all one and the same. Another thing I have to correct is it's simply not true that the returns here were not variable on the performance of the portfolio. It's not really well developed in the record here, but if you want to, we could lodge the brochures that are used to market these things. They tell these guys that their returns are variable and that they could lose all of their principal because of the investments in covered securities. A second thing is, of course, Mr. Goldstein correctly says there are particular problems when broker dealers lie about covered securities. Well, so too there are particular problems when an unregistered investment company lies about covered securities. And that's what their own complaint says was the reality of the Stanford Investment Bank, that it was an unregistered investment company. That's interesting for two reasons. One, if it were a registered investment company, all of its securities would be covered securities. That's another way you can get within the covered security bin. So this idea that Mr. Goldstein proclaims this is not a covered securities fraud is simply wrong. It is. It was material to this fraud to make misrepresentations about purchases of covered securities. Without those representations that we're going to take their money and we're going to reinvest it, again, words from their complaint, in covered securities, nobody's going to give their money to a bank in Antigua. The reason you give your money to a bank in Antigua is because you think it's backed by something more than a piece of paper and that something more was purchases of covered securities on the market. Even if you're right about that, Mr. Komet, they also said there was a representation that this is insured by Lloyds and there was another claim that they made. So even if you're right, wouldn't the answer be, okay, drop anything that has to do with interconnection with the sale of purchases of securities? We have, oh, we have a claim about the insurance and we also have a claim that both Antigua and the United States were heavily regulating those reforms. Why couldn't they have a complaint, shorn of the incorrect premise and based on the insurance and the regulated aspects? If I can answer, first of all, I think that Mr. Goldstein was quite prudent to not defend the Fifth Circuit's rationale. So the fact that there are other misrepresentations should not mean that a misrepresentation in connection with the purchaser sale of covered securities is somehow okay. Sluice makes clear that A misrepresentation is enough. Now the other thing I would say very briefly is that they may have an opportunity to try to replede that in a sense is the next case. I assure you that we would be arguing here where the essence of their claim is to hold the petitioner's secondarily liable for the underlying misrepresentations. They have to sort of take them all, but that's the next case. Thank you, Your Honor. Thank you, Council. The case is submitted