Supreme Court considers SEC's authority in stock fraud cases

WASHINGTON - The Supreme Court on Monday debated government power to punish investment fraud in a case given renewed attention with the collapse of Enron. <br> <br> Justices are reviewing the Securities and Exchange Commission&#39;s authority to sue to recover investors&#39; misspent money. <br> <br> At stake in this case is $343,000 stolen from an elderly investor and his mentally retarded daughter. But the case has broader implications for all people who expect protection from rogue stockbrokers and advisers, Justice Department lawyer Matthew D. Roberts told justices. <br> <br> Former Maryland broker Charles Zandford was convicted of federal wire fraud for selling William Wood&#39;s investments and using the money to pay his own bills. He was ordered to pay $10,800 in restitution and serve 52 months in prison. <br> <br> After the conviction, the SEC sued Zandford seeking to recover the rest of the stolen money. The 4th U.S. Circuit Court of Appeals said the federal securities law used to file suit does not apply in general fraud cases. <br> <br> Steven H. Goldblatt, Zandford&#39;s attorney, told justices that Zandford has already been punished. He said the SEC overstepped the law with the additional civil lawsuit. <br> <br> The SEC has had a high-profile role in the Enron case, pursuing a civil investigation of Enron and accounting firm Arthur Andersen while the Justice Department has conducted a criminal inquiry. The subject did not come up in Monday&#39;s argument, though justices inquired about the aggressiveness of the agency to uncover wrongdoing. <br> <br> Groups like the AARP and Consumer Federation of America back the SEC, which oversees broker-dealers and investment advisers, in this case. <br> <br> &#34;If the SEC&#39;s enforcement authority is restricted to the point it cannot challenge such obvious fraudulent conduct in the sale of securities as occurred here, the investing public will have lost an invaluable safeguard and the SEC will have lost a critical weapon,&#34; the groups told the court in a filing. <br> <br> Justices must decide if Zandford&#39;s fraud was &#34;in connection&#34; with the sale of securities. <br> <br> Howard M. Friedman, a professor at the University of Toledo College of Law, said the court&#39;s ruling will mostly affect private lawsuits by investors because the SEC &#34;doesn&#39;t have the resources to bring these cases every time this happens.&#34; <br> <br> The case is Securities and Exchange Commission v. Zandford, 01-147. <br> <br> ------ <br> <br> On the Net: <br> <br> Supreme Court: http://www.supremecourtus.gov/ <br> <br> SEC: http://www.sec.gov/ <br> <br>

http://accesswdun.com/article/2002/3/197276