Hanly (defendant) and several other brokers attempted to persuade potential investors to purchase stock in U.S. Sonics Corporation (Sonics). Sonics had been in business for several years, but had never had a profit, and several potential mergers with larger corporations had failed. Despite this, Hanly continued to enthusiastically recommend Sonics’ stock to potential investors. The Securities and Exchange Commission (plaintiff) brought an action against Hanly, alleging that he had a duty to inform investors about adverse information regarding Sonics and failed to do so. The Commission then barred Hanly and the other brokers from associating with any other brokers. Hanly appealed to the Second Circuit Court of Appeals.