The Supreme Court ruled today that the SEC has the authority to sue brokers who steal money from clients’ accounts. This ruling, which overturned a lower-court ruling, bolsters the SEC’s enforcement powers.
The case centers around Charles Zandford, a former broker at Dominick & Dominick Securities, of Maryland, who was convicted in 1995 of stealing around $350,000 from an elderly client and his mentally retarded daughter. Zandford was convicted of mail and wire fraud and was sentenced to more than four years in prison. But the SEC also pursued him under the theory that he had committed securities fraud in addition to wire fraud. A federal appeals court last year disagreed. The unanimous Supreme Court ruling therefore revives the SEC’s case against Zandford.
The SEC and NASD were watching the case carefully, since, as the NASD said that “a crucial protection for investors in the securities markets” had been eliminated under the lower court ruling. Securities-fraud law, the NASD says, is more effective in combating unscrupulous reps than federal mail or wire fraud laws.