United States v. Naftalin

441 U.S. 768 (1979)

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United States v. Naftalin

United States Supreme Court
441 U.S. 768 (1979)

  • Written by Robert Cane, JD

Facts

Neil Naftalin (defendant) was the president of a broker-dealer firm. Naftalin engaged in a scheme of short-selling stocks. Naftalin placed orders with five brokers to sell shares of select stocks. However, Naftalin did not own the shares of stock that he had placed orders to sell, so he falsely represented to the brokers that he owned the shares. Unfortunately for Naftalin, the stocks increased in price, and he was unable to deliver the shares that he had offered for sale because he did not own the shares. Consequently, the brokers had to purchase replacement shares of stock for the purchasers of the shares that Naftalin had placed for sale. The United States (plaintiff) prosecuted Naftalin for violations of § 17(a)(1) of the Securities Act of 1933 (1933 act). Naftalin was convicted of eight counts of employing a scheme and artifice to defraud in the sale of securities. The appellate court vacated Naftalin’s convictions. The appellate court found that the purpose of the 1933 act was to protect investors from fraud, so because Naftalin’s fraud injured brokers, not investors, Naftalin did not violate § 17(a)(1). The United States appealed.

Rule of Law

Issue

Holding and Reasoning (Brennan, J.)

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