SEC V. Material Found at 745 F. 2D 197 or 1984 U.S. App Lexis 18061 Case Study

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SEC v Materia

Securities and Exchange Commission v. Anthony Materia

745 F.2d 197 (1984)

Facts

Anthony Materia, an employee of the printing business Bowne in New York City, had been entrusted with financial documentation containing sensitive information. Although the actual names of the corporations discussed in the documents were missing, enough details remained to allow Materia to deduce which companies were the targets of upcoming purchase bids. Materia then used this confidential information to purchase stock in the target companies in advance of the tender offers and then sold this stock once the offer had been made public, thereby making a profit. This had already occurred four times before the Securities and Exchange Commission (SEC) obtained a permanent injunction against further trading by Materia during a bench trial in front of Judge Brieant in District Court. Judge Brieant further agreed with the SEC and ordered Materia to return the nearly $100,000 in profits he had made with the stolen confidential information. Material appealed the decision, which is the subject matter of this brief.

Issues

The first issue addressed by the Appeals Court of the Second Circuit was whether the Court has the proper authority to invoke an equity jurisdiction, in addition to injunctive relief. Materia also appealed the lower court's holding that his trading activities on confidential information represented violations of the Securities and Exchange Act of 1934, specifically Section 10(b) and Rule 10b-5.

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Materia argued that his employer suffered no injury as a result of his trading on confidential information and also had no duty to disclose material nonpublic information to the sellers of equity shares. The final issue raised on appeal was Materia's claim that the confidential information was unconnected to his trading activity.

Holding

The Second Circuit Court of Appeals affirmed the lower courts holding concerning all issues raised on appeal. Materia was permanently forbidden to continue trading on confidential information and was required to return all profits made by such trading activity.

Rationale of the Court

Judge Irving R. Kaufman of the Second Circuit wrote the unanimous decision by the three judge panel within three days of hearing arguments in the case. When considering the jurisdictional issues raised by the appellant Materia the judges agreed that the case before them did not represent a civil suit to reclaim losses suffered by investors, otherwise called a private right of action, but an action brought about by the SEC. The Second Circuit judges recognized Congress' intention to create laws which protect….....

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