Holmes v. Securities Investor Protection Corporation

Syllabus

No. 90-727. Argued November 13, 1991-Decided March 24, 1992

Pursuant to its authority under the Securities Investor Protection Act (SIPA), respondent Securities Investor Protection Corporation (SIPC) sought, and received, judicial decrees to protect the customers of two of its member broker-dealers. After trustees were appointed to liquidate the broker-dealers' businesses, SIPC and the trustees filed this suit, alleging, among other things, that petitioner Holmes and others had conspired in a fraudulent stock-manipulation scheme that disabled the broker-dealers from meeting obligations to customers; that this conduct triggered SIPC's statutory duty to advance funds to reimburse the cus- tomers; that the conspirators had violated the Securities Exchange Act of 1934 and regulations promulgated thereunder; and that their acts amounted to a "pattern of racketeering activity" within the meaning of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18

U. S. C. §§ 1962, 1961(1), and (5), so as to entitle the plaintiffs to recover

treble damages, § 1964(c). The District Court entered summary judg- ment for Holmes on the RICO claims, ruling, inter alia, that SIPC did not meet the "purchaser-seller" requirement for standing under RICO.

The Court of Appeals held the finding of no standing to be error and, for this and other reasons, reversed and remanded.

Held: SIPC has demonstrated no right to sue Holmes under § 1964(c).

Pp. 265-276.

recover threefold the damages he sustains ...

(a) A plaintiff's right to sue under § 1964(c)-which specifies that "[alny person injured ... by reason of a violation of [§ 1962] may sue therefor ... and ... requires a showing that the defendant's violation was the proximate cause of the plaintiff's injury. Section 1964(c) was modeled on § 4 of the Clayton Act, which was itself based on § 7 of the Sherman Act, see Associated General Contractors of Cal., Inc. v. Carpenters, 459 U. S.

519, 530, and both antitrust sections had been interpreted to incorporate common-law principles of proximate causation, see, e. g., id., at 533-534, and n. 29, 536, n. 33. It must be assumed that the Congress which enacted § 1964(c) intended its words to have the same meaning that courts had already given them. Cf. id., at 534. Although § 1964(c)'s language can be read to require only factual, "but for," causation, this

Cite as: 503 U. S. 258 (1992) Syllabus

construction is hardly compelled, and the very unlikelihood that Con- gress meant to allow all factually injured plaintiffs to recover persuades this Court that RICO should not get such an expansive reading.

Pp. 265-268.

(b) As used herein, "proximate cause" requires some direct relation between the injury asserted and the injurious conduct alleged. For a variety of reasons, see id., at 540-544, such directness of relationship is one of the essential elements of Clayton Act causation. Pp. 268-270. (c) SIPC's claim that it is entitled to recover on the ground that it is subrogated to the rights of the broker-dealers' customers who did not purchase manipulated securities fails because the conspirators' conduct did not proximately cause those customers' injury. Even assuming, arguendo, that SIPC may stand in the shoes of such customers, the link is too remote between the stock manipulation alleged, which di- rectly injured the broker-dealers by rendering them insolvent, and the nonpurchasing customers' losses, which are purely contingent on the broker-dealers' inability to pay customers' claims. The facts of this case demonstrate that the reasons supporting adoption of the Clayton Act direct-injury limitation, see ibid., apply with equal force to § 1964(c) suits. First, if the nonpurchasing customers were allowed to sue, the district court would first need to determine the extent to which their inability to collect from the broker-dealers was the result of the alleged conspiracy, as opposed to, e. g., the broker-dealers' poor business prac- tices or their failures to anticipate financial market developments. Sec- ond, assuming that an appropriate assessment of factual causation could be made out, the court would then have to find some way to apportion the possible respective recoveries by the broker-dealers and the custom- ers, who would otherwise each be entitled to recover the full treble damages. Finally, the law would be shouldering these difficulties de- spite the fact that the directly injured broker-dealers could be counted on to bring suit for the law's vindication, as they have in fact done in the persons of their SIPA trustees.

Indeed, the insolvency of the vic- tim directly injured adds a further concern to those already expressed in Associated General Contractors, since a suit by an indirectly injured victim could be an attempt to circumvent the relative priority its claim would have in the directly injured victim's liquidation proceedings.

This analysis is not deflected by the congressional admonition that RICO be liberally construed to effectuate its remedial purposes, since allowing suits by those injured only indirectly would open the door to massive and complex damages litigation, which would not only burden the courts, but also undermine the effectiveness of treble-damages suits.

Id., at 545. Thus, SIPC must await the outcome of the trustees' suit

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and may share according to the priority SIPA gives its claim if the trustees recover from Holmes. Pp. 270-275.

(d) SIPC's claim that it is entitled to recover under a SIPA provision, 15 U. S. C. § 78eee(d), fails because, on its face, that section simply quali- fies SIPC as a proper party in interest in any "matter arising in a liqui- dation proceeding" as to which it "shall be deemed to have intervened," and gives SIPC no independent right to sue Holmes for money dam- ages. Pp. 275-276.

(e) This Court declines to decide whether every RICO plaintiff who sues under § 1964(c) and claims securities fraud as a predicate offense In light of the foregoing, dis- must have purchased or sold a security. cussion of that issue is unnecessary to resolve this case. Nor will leav- ing the question unanswered deprive the lower courts of much-needed guidance. A review of those courts' conflicting cases shows that all could have been resolved on proximate-causation grounds, and that none involved litigants like those in Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723, who decided to forgo securities transactions in reliance on misrepresentations. P. 276.

908 F. 2d 1461, reversed and remanded.

SOUTER, J., delivered the opinion of the Court, in which REHNQUIST,

Part IV of which WHITE, STEVENS, and O'CONNOR, JJ., joined. O'CON- NOR, J., filed an opinion concurring in part and concurring in the judgment, in which WHITE and STEVENS, JJ., joined, post, p. 276. SCALIA, J., filed an opinion concurring in the judgment, post, p. 286.

Jack I. Samet argued the cause for petitioner. With him on the briefs were Jovina R. Hargis and Stephen K. Lubega.

G. Robert Blakey argued the cause for respondents. With

him on the brief for respondent Securities Investor Protec- tion Corporation were Stephen C. Taylor, Mark Riera, Theo- dore H. Focht, and Kevin H. Bell.*

*Briefs of amici curiae urging reversal were filed for the American

Institute of Certified Public Accountants by Louis A Craco and John J Halloran, Jr.; and for Arthur Andersen & Co. et al. by Kathryn A Oberly, Carl D Liggio, Jon N Ekdahl, Harris J Amhowitz, Howard J Krongard, Leonard P Novello, and Eldon Olson.

Kevin P. Roddy and William S. Lerach filed a brief for the National Association of Securities and Commercial Law Attorneys (NASCAT) as amicus curiae urging affirmance.

Cite as: 503 U. S. 258 (1992) Opinion of the Court JUSTICE SOUTER delivered the opinion of the Court.

Respondent Securities Investor Protection Corporation (SIPC) alleges that petitioner Robert G. Holmes, Jr., con- spired in a stock-manipulation scheme that disabled two broker-dealers from meeting obligations to customers, thus triggering SIPC's statutory duty to advance funds to reim- burse the customers. The issue is whether SIPC can re- cover from Holmes under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U. S. C. 4§ 1961-1968 (1988 ed. and Supp. II). We hold that it cannot.

The Securities Investor Protection Act of 1970 (SIPA), 84 Stat. 1636, as amended, 15 U. S. C. §§ 78aaa-78111, authorized the formation of SIPC, a private nonprofit corporation, § 78ccc(a)(1), of which most broker-dealers registered under § 15(b) of the Securities Exchange Act of 1934, § 78o(b), are required to be "members," § 78ccc(a)(2)(A). Whenever SIPC determines that a member "has failed or is in danger of failing to meet its obligations to customers," and finds certain other statutory conditions satisfied, it may ask for a "protective decree" in federal district court. § 78eee(a)(3).

Once a court finds grounds for granting such a petition, § 78eee(b)(1), it must appoint a trustee charged with liquidat- ing the member's business, § 78eee(b)(3).

After returning all securities registered in specific custom- ers' names, §§ 78fff-2(c)(2); 78fff(a)(1)(A); 78111(3), the trustee must pool securities not so registered together with cash found in customers' accounts and divide this pool ratably to satisfy customers' claims, §§ 78fff-2(b); 78fff(a)(1)(B).' To

'Such "customer property," see 15 U. S. C. § 78111(4), does not become part of the debtor's general estate until all customers' and SIPC's claims have been paid. See § 78fff-2(c)(1). That is to say, the claim of a general

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Opinion of the Court

the extent the pool of customer property is inadequate, SIPC must advance up to $500,000 per customer 2 to the trustee for use in satisfying those claims. § 78fff-3(a).

On July 24, 1981, SIPC sought a decree from the United States District Court for the Southern District of Florida to protect the customers of First State Securities Corporation (FSSC), a broker-dealer and SIPC member. Three days later, it petitioned the United States District Court for the Central District of California, seeking to protect the custom- ers of Joseph Sebag, Inc. (Sebag), also a broker-dealer and SIPC member. Each court issued the requested decree and appointed a trustee, who proceeded to liquidate the broker- dealer.

Two years later, SIPC and the two trustees brought this suit in the United States District Court for the Central Dis- trict of California, accusing some 75 defendants of conspiracy in a fraudulent scheme leading to the demise of FSSC and Sebag.

Insofar as they are relevant here, the allegations were that, from 1964 through July 1981, the defendants ma- nipulated stock of six companies by making unduly optimistic statements about their prospects and by continually selling small numbers of shares to create the appearance of a liquid market; that the broker-dealers bought substantial amounts of the stock with their own funds; that the market's percep- tion of the fraud in July 1981 sent the stocks plummeting;

creditor of the broker-dealer (say, its landlord) is subordinated to claims of customers and SIPC.

2With respect to a customer's cash on deposit with the broker-dealer, SIPC is not obligated to advance more than $100,000 per customer. § 78fff-3(a)(1).

8To cover these advances, SIPA provides for the establishment of a SIPC Fund. §78ddd(a)(1). SIPC may replenish the fund from time to time by levying assessments, § 78ddd(c)(2), which members are legally ob- ligated to pay, § 78jjj(a).

Cite as: 503 U. S. 258 (1992) Opinion of the Court

and that this decline caused the broker-dealers' financial dif- ficulties resulting in their eventual liquidation and SIPC's advance of nearly $13 million to cover their customers' claims. The complaint described Holmes' participation in the scheme by alleging that he made false statements about the prospects of one of the six companies, Aero Systems, Inc., of which he was an officer, director, and major shareholder; and that over an extended period he sold small amounts of stock in one of the other six companies, the Bunnington Corporation, to simulate a liquid market. The conspirators were said to have violated § 10(b) of the Securities Exchange Act of 1934, 15 U. S. C. § 78j(b), Securities and Exchange Commission (SEC) Rule 10b-5, 17 CFR §240.10b-5 (1991), and the mail and wire fraud statutes, 18 U. S. C. §§ 1341, 1343 (1988 ed., Supp. II). Finally, the complaint concluded that their acts amounted to a "pattern of racketeering activity" within the meaning of the RICO statute, 18 U. S. C. §§ 1962, 1961(1), and (5) (1988 ed. and Supp. II), so as to entitle the plaintiffs to recover treble damages, § 1964(c).

After some five years of litigation over other issues, 4 the District Court entered summary judgment for Holmes on the RICO claims, ruling that SIPC "does not meet the 'purchaser-seller' requirements for standing to assert RICO claims which are predicated upon violation of Section 10(b) and Rule 10b-5," App. to Pet. for Cert. 45a,5 and that neither

4 See generally Securities Investor Protection Corporation v. Vigman, 803 F. 2d 1513 (CA9 1986) (Vigman II); Securities Investor Protection Corporation v. Vigman, 764 F. 2d 1309 (CA9 1985) (Vigman I).

I Two years earlier, the District Court had dismissed SIPC's non-RICO securities action on the ground that SIPC's claim to have been subrogated to the rights only of those customers who did not purchase any of the manipulated securities rendered the action a failure under the so-called Birnbaum test, which requires a plaintiff to be a purchaser or seller of a security. See Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723 (1975); Birnbaum v. Newport Steel Corp., 193 F. 2d 461 (CA2), cert. denied, 343 U. S. 956 (1952). The Court of Appeals for the Ninth Circuit reversed

264 HOLMES v. SECURITIES INVESTOR PROTECTION CORPORATION

Opinion of the Court

SIPC nor the trustees had satisfied the "proximate cause requirement under RICO," id., at 39a; see id., at 37a. Al- though SIPC's claims against many other defendants re- mained pending, the District Court under Federal Rule of Civil Procedure 54(b) entered a partial judgment for Holmes, immediately appealable. SIPC and the trustees appealed.

The United States Court of Appeals for the Ninth Circuit reversed and remanded after rejecting both of the District Court's grounds. Securities Investor Protection Corpora- tion v. Vigman, 908 F. 2d 1461 (1990). The Court of Appeals held first that, whereas a purchase or sale of a security is necessary for entitlement to sue on the implied right of ac- tion recognized under § 10(b) and Rule 10b-5, see Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723 (1975), the cause of action expressly provided by § 1964(c) of RICO imposes no such requirement limiting SIPC's standing, 908 F. 2d, at 1465-1467. Second, the appeals court held the finding of no proximate cause to be error, the result of a mistaken focus on the causal relation between SIPC's injury and the acts of Holmes alone; since Holmes could be held responsible for the acts of all his co-conspirators, the Court of Appeals ex- plained, the District Court should have looked to the causal relation between SIPC's injury and the acts of all conspira- tors.

Id., at 1467-1469.6

Holmes' ensuing petition to this Court for certiorari pre- sented two issues, whether SIPC had a right to sue under

that ruling, Vigman II, supra, holding that the District Court should have permitted SIPC to proceed under the Birnbaum rule to the extent that FSSC and Sebag had made unauthorized use of those customers' assets to buy manipulated securities, as SIPC had alleged they had.

Id., at 1519- 1520. On remand, after discovery, the District Court ruled that no genu- ine issue of material fact existed on the question of unauthorized use and that Holmes was entitled to summary judgment. App. to Pet. for Cert.

27a. SIPC has not appealed that ruling.

6For purposes of this decision, we will assume without deciding that the Court of Appeals correctly held that Holmes can be held responsible for the acts of his co-conspirators.

Cite as: 503 U. S. 258 (1992) Opinion of the Court

RICO, 7 and whether Holmes could be held responsible for the actions of his co-conspirators. We granted the petition on the former issue alone, 499 U. S. 974 (1991), and now reverse.8

RICO's provision for civil actions reads that

"[a]ny person injured in his business or property by rea- son of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee."

18 U. S. C. § 1964(c).

This language can, of course, be read to mean that a plain- tiff is injured "by reason of" a RICO violation, and therefore may recover, simply on showing that the defendant violated § 1962, 9 the plaintiff was injured, and the defendant's viola-

7 The petition phrased the question as follows: "Whether a party which was neither a purchaser nor a seller of securities, and for that reason lacked standing to sue under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, is free of that limitation on standing when presenting essentially the same claims under the Racketeer Influ- enced and Corrupt Organizations Act ('RICO')." Pet. for Cert. i.

Holmes does not contest the trustees' right to sue under § 1964(c), and they took no part in the proceedings before this Court after we granted certiorari on the first question alone.

9 Section 1962 lists "Prohibited activities." Before this Court, SIPC in- vokes only subsections (c) and (d). See Brief for Respondent 15, and n. 58.

Subsection (c) makes it "unlawful for any person ... associated with any enterprise ... to ... participate ... in the conduct of such enterprise's affairs through a pattern of racketeering activity ...

Insofar as it is ." relevant here, subsection (d) makes it unlawful to conspire to violate sub- section (c). The RICO statute defines "pattern of racketeering activity" as "requir[ing] at least two acts of racketeering activity[,] .. the last of which occurred within ten years ... after the commission of a prior act of racketeering activity." § 1961(5). The predicate offenses here at issue are listed in 18 U. S. C. §§ 1961(1)(B) and (D) (1988 ed., Supp. II), which

266 HOLMES v. SECURITIES INVESTOR PROTECTION CORPORATION

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tion was a "but for" cause of plaintiff's injury. Cf. Associ- ated General Contractors of Cal., Inc. v. Carpenters, 459

U. S. 519, 529 (1983). This construction is hardly compelled,

however, and the very unlikelihood that Congress meant to allow all factually injured plaintiffs to recover 1 persuades us that RICO should not get such an expansive reading."

Not even SIPC seriously argues otherwise. 12

define "racketeering activity" to include "any act which is indictable under ... section 1341 (relating to mail fraud), [or] section 1343 (relating to wire fraud) .... . fraud in the sale of securities .... .

or . . . any offense involving . .

1oin a philosophical sense, the consequences of an act go forward to eternity, and the causes of an event go back to the dawn of human events, and beyond. But any attempt to impose responsibility upon such a basis would result in infinite liability for all wrongful acts, and would 'set society on edge and fill the courts with endless litigation."' W. Keeton, D. Dobbs,

R. Keeton, & D. Owen, Prosser and Keeton on Law of Torts § 41, p. 264

(5th ed. 1984) (quoting North v. Johnson, 58 Minn. 242, 245, 59 N. W. 1012 (1894)). As we put it in the antitrust context, "An antitrust violation may be expected to cause ripples of harm to flow through the Nation's economy; but despite the broad wording of § 4 [of the Clayton Act, 15 U. S. C. § 15,] there is a point beyond which the wrongdoer should not be held liable."

Blue Shield of Virginia v. McCready, 457 U. S. 465, 476-477 (1982) (inter- nal quotation marks and citation omitted).

"The Courts of Appeals have overwhelmingly held that not mere fac- tual, but proximate, causation is required. See, e. g., Pelletier v. Zweifel, 921 F. 2d 1465, 1499-1500 (CAll), cert. denied, 502 U. S. 855 (1991); Ocean Energy II, Inc. v. Alexander & Alexander, Inc., 868 F. 2d 740, 744 (CA5 1989); Brandenburg v. Seidel, 859 F. 2d 1179, 1189 (CA4 1988); Sperber v.

Boesky, 849 F. 2d 60 (CA2 1988); Haroco, Inc. v. American National Bank & Trust Co. of Chicago, 747 F. 2d 384, 398 (CA7 1984), aff'd, 473

U. S. 606 (1985) (per curiam). Indeed, the court below recognized a

proximate-cause requirement. See Securities Investor Protection Corpo- ration v. Vigman, 908 F. 2d 1461, 1468 (CA9 1990).

12 SIPC does say that the question whether its claim must, and as al- leged may, satisfy the standard of proximate causation is not within the question on which we granted certiorari. See Brief for Respondent 3, 33, 34, 38-39. However, the proximate-cause issue is "fairly included" within that question. See this Court's Rule 14.1(a). SIPC's own restatement of the question presented reads: "Was the Ninth Circuit correct when it held that SIPC need not be a 'purchaser or seller' of securities to sue under Section 1964(c), which provides that 'any person' may sue for 'injury to

Cite as: 503 U. S. 258 (1992) Opinion of the Court

The key to the better interpretation lies in some statutory history. We have repeatedly observed, see Agency Holding Corp. v. Malley-Duff & Associates, Inc., 483 U. S. 143, 150- 151 (1987); Shearson/American Express Inc. v. McMahon, 482 U. S. 220, 241 (1987); Sedima, S. P. R. L. v. Imrex Co., 473

U. S. 479, 489 (1985), that Congress modeled § 1964(c) on the

civil-action provision of the federal antitrust laws, § 4 of the Clayton Act, which reads in relevant part that

"any person who shall be injured in his business or prop- erty by reason of anything forbidden in the antitrust laws may sue therefor ... and shall recover threefold the damages by him sustained, and the cost of suit, in- cluding a reasonable attorney's fee."

In Associated General Contractors, supra, we discussed how Congress enacted §4 in 1914 with language borrowed from § 7 of the Sherman Act, passed 24 years earlier.13 Be- fore 1914, lower federal courts had read § 7 to incorporate common-law principles of proximate causation, 459 U. S., at 533-534, and n. 29 (citing Loeb v. Eastman Kodak Co., 183

F. 704 (CA3 1910); Ames v. American Telephone & Telegraph

Co., 166 F. 820 (CC Mass. 1909)), and we reasoned, as many lower federal courts had done before us, see Associated Gen-

his business or property' 'by reason of' 'any offense... involving fraud in the sale of securities... punishable under any law of the United States,' wire fraud, or mail fraud in violation of Section 1962?" Brief for Respond- ent i (ellipses in original). By thus restating the question presented (as was its right to do, see this Court's Rule 24.2), SIPC properly set the enquiry in the key of the language of § 1964(c), which we hold today carries a proximate-cause requirement within it. What is more, SIPC briefed the proximate-cause issue, see Brief for Respondent 34-36, 38-39, and announced at oral argument that it recognized the Court might reach it, see Tr. of Oral Arg. 31.

Is When Congress enacted § 4 of the Clayton Act, § 7 of the Sherman Act

"Any person who shall be injured in his business or property by any other person or corporation by reason of anything forbidden or declared to be unlawful by this act, may sue...." 26 Stat. 210.

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eral Contractors, supra, at 536, n. 33 (citing cases), 4 that congressional use of the § 7 language in § 4 presumably car- ried the intention to adopt "the judicial gloss that avoided a simple literal interpretation," 459 U. S., at 534. Thus, we held that a plaintiff's right to sue under § 4 required a show- ing that the defendant's violation not only was a "but for" cause of his injury, but was the proximate cause as well.

The reasoning applies just as readily to § 1964(c). We may fairly credit the 91st Congress, which enacted RICO, with knowing the interpretation federal courts had given the words earlier Congresses had used first in § 7 of the Sherman Act, and later in the Clayton Act's § 4. See Cannon v. Uni- versity of Chicago, 441 U. S. 677, 696-698 (1979).

It used the same words, and we can only assume it intended them to have the same meaning that courts had already given them.

See, e. g., Oscar Mayer & Co. v. Evans, 441 U. S. 750, 756 (1979); Northcross v. Memphis Bd. of Ed., 412 U. S. 427, 428 (1973). Proximate cause is thus required.

Here we use "proximate cause" to label generically the judicial tools used to limit a person's responsibility for the consequences of that person's own acts. At bottom, the no- tion of proximate cause reflects "ideas of what justice de- mands, or of what is administratively possible and conven- ient." W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and Keeton on Law of Torts § 41, p. 264 (5th ed. 1984). Ac- cordingly, among the many shapes this concept took at com- mon law, see Associated General Contractors, supra, at 532-533, was a demand for some direct relation between the injury asserted and the injurious conduct alleged. Thus, a plaintiff who complained of harm flowing merely from the misfortunes visited upon a third person by the defendant's acts was generally said to stand at too remote a distance to

'4 These lower courts had so held well before 1970, when Congress passed RICO.

Cite as: 503 U. S. 258 (1992) Opinion of the Court recover. See, e. g., 1 J. Sutherland, Law of Damages 55-56 (1882).

Although such directness of relationship is not the sole re- quirement of Clayton Act causation,'15 it has been one of its central elements, Associated General Contractors, 459 U. S., at 540, for a variety of reasons. First, the less direct an injury is, the more difficult it becomes to ascertain the amount of a plaintiff's damages attributable to the violation, Id., at 542-543. as distinct from other, independent, factors.

Second, quite apart from problems of proving factual causa- tion, recognizing claims of the indirectly injured would force courts to adopt complicated rules apportioning damages among plaintiffs removed at different levels of injury from the violative acts, to obviate the risk of multiple recoveries.

Id., at 543-544; Blue Shield of Virginia v. McCready, 457

U. S. 465, 473-475 (1982); Hawaii v. Standard Oil Co. of Cal.,

405 U. S. 251, 264 (1972). And, finally, the need to grapple with these problems is simply unjustified by the general in- terest in deterring injurious conduct, since directly injured victims can generally be counted on to vindicate the law as

15 We have sometimes discussed the requirement that a § 4 plaintiff have suffered "antitrust injury" as a component of the proximate-cause enquiry.

See Associated General Contractors of Cal., Inc. v. Carpenters, 459 U. S. 519, 538 (1983); Blue Shield of Virginia v. McCready, 457 U. S., at 481-484.

We need not discuss it here, however, since "antitrust injury" has no ana- logue in the RICO setting. See Sedima, S. P. R. L. v. Imrex Co., 473 U. S. 479, 495-497 (1985).

For the same reason, there is no merit in SIPC's reliance on legislative history to the effect that it would be inappropriate to have a "private contend with a body of precedent-appropriate in a purely litigant ... antitrust context-setting strict requirements on questions such as 'stand- 115 Cong. Rec. 6995 (1969) (American ing to sue' and 'proximate cause."' Bar Association comments on S. 2048). That statement is rightly under- stood to refer only to the applicability of the concept of "antitrust injury" to RICO, which we rejected in Sedima, supra, at 495-497. See Branden. burg v. Seidel, 859 F. 2d, at 1189, n. 11. Besides, even if we were to read this statement to say what SIPC says it means, it would not amount to more than background noise drowned out by the statutory language.

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private attorneys general, without any of the problems at- tendant upon suits by plaintiffs injured more remotely. As- sociated General Contractors, supra, at 541-542.

We will point out in Part III-A below that the facts of the instant case show how these reasons apply with equal force to suits under § 1964(c).

As we understand SIPC's argument, it claims entitlement to recover, first, because it is subrogated to the rights of those customers of the broker-dealers who did not purchase manipulated securities, and, second, because a SIPA provi- sion gives it an independent right to sue. The first claim fails because the conspirators' conduct did not proximately cause the nonpurchasing customers' injury, the second be- cause the provision relied on gives SIPC no right to sue for damages.

As a threshold matter, SIPC's theory of subrogation is fraught with unanswered questions.

In suing Holmes, SIPC does not rest its claimed subrogation to the rights of the broker-dealers' customers on any provision of SIPA. See Brief for Respondent 38, and n. 181. SIPC assumes that SIPA provides for subrogation to the customers' claims against the failed broker-dealers, see 15 U. S. C. §§ 78fff-3(a), 78fff-4(c); see also § 78fff-2(c)(1)(C); see generally Mishkin v.

Peat, Marwick, Mitchell & Co., 744 F. Supp. 531, 556-557 (SDNY 1990), but not against third parties like Holmes. As against him, SIPC relies rather on "common law rights of subrogation" for what it describes as "its money paid to cus- tomers for customer claims against third parties." Brief for Respondent 38 (footnote omitted). At oral argument in this Court, SIPC narrowed its subrogation argument to cover only the rights of customers who never purchased manipu-

Cite as: 503 U. S. 258 (1992) Opinion of the Court

lated securities. Tr. of Oral Arg. 29.16 But SIPC stops there, leaving us to guess at the nature of the "common law rights of subrogation" that it claims, and failing to tell us whether they derive from federal or state common law, or, if the latter, from common law of which State.17 Nor does SIPC explain why it declines to assert the rights of custom- ers who bought manipulated securities.'8

It is not these questions, however, that stymie SIPC's sub- rogation claim, for even assuming, arguendo, that it may stand in the shoes of nonpurchasing customers, the link is too remote between the stock manipulation alleged and the customers' harm, being purely contingent on the harm suf- fered by the broker-dealers. That is, the conspirators have allegedly injured these customers only insofar as the stock manipulation first injured the broker-dealers and left them without the wherewithal to pay customers' claims. Al- though the customers' claims are senior (in recourse to "cus- tomer property") to those of the broker-dealers' general creditors, see § 78fff-2(c)(1), the causes of their respective injuries are the same: The broker-dealers simply cannot pay their bills, and only that intervening insolvency connects the conspirators' acts to the losses suffered by the nonpurchasing customers and general creditors.

As we said, however, in Associated General Contractors, quoting Justice Holmes, "'The general tendency.of the law, in regard to damages at least, is not to go beyond the first step."' 459 U. S., at 534 (quoting Southern Pacific Co. v.

W6 And, SIPC made no allegation that any of these customers failed to do so in reliance on acts or omissions of the conspirators.

17There is support for the proposition that SIPC can assert state- law subrogation rights against third parties. See Redington v. Touche Ross & Co., 592 F. 2d 617, 624 (CA2 1978), rev'd on other grounds, 442

U. S. 560 (1979). We express no opinion on this issue.

18The record reveals that those customers have brought their own suit against the conspirators.

272 HOLMES v. SECURITIES INVESTOR PROTECTION CORPORATION

Opinion of the Court

Darnell-Taenzer Lumber Co., 245 U. S. 531, 533 (1918)), 19 and the reasons that supported conforming Clayton Act causa- tion to the general tendency apply just as readily to the pres- ent facts, underscoring the obvious congressional adoption of the Clayton Act direct-injury limitation among the require- ments of § 1964(c).2° If the nonpurchasing customers were

19SIPC tries to avoid foundering on the rule that creditors generally may not sue for injury affecting their debtors' solvency by arguing that those customers that owned manipulated securities themselves were vic- tims of Holmes' fraud. See Brief for Respondent 39, n. 185 (citing Ash- land Oil, Inc. v. Arnett, 875 F. 2d 1271, 1280 (CA7 1989); Ocean Energy, 868 F. 2d, at 744-747; Bankers Trust Co. v. Rhoades, 859 F. 2d 1096, 1100- 1101 (CA2 1988), cert. denied, 490 U. S. 1007 (1989)). While that may well be true, since SIPC does not claim subrogation to the rights of the custom- ers that purchased manipulated securities, see supra, at 270-271, it gains nothing by the point.

We further note that SIPC alleged in the courts below that, in late May 1981, Joseph Lugo, an officer of FSSC and one of the alleged conspirators, parked manipulated stock in the accounts of customers, among them Holmes, who actively participated in the parking transaction involving his account. See Statement of Background and Facts, 1 App. 223-225. Lugo "sold" securities owned by FSSC to customers at market price and "bought" back the same securities some days later at the same price plus interest. Under applicable regulations, a broker-dealer must discount the stock it holds in its own account, see 17 CFR § 240.15c3-1(c)(2)(iv)(F)(1)(vi) (1991), and the sham transactions allowed FSSC to avoid the discount.

But for the parking transactions, FSSC would allegedly have failed capital requirements sooner; would have been shut down by regulators; and would not have dragged Sebag with it in its demise. 1 App. 231. Thus, their customers would have been injured to a lesser extent.

Id., at 229, 231.

We do not rule out that, if, by engaging in the parking transactions, the conspirators committed mail fraud, wire fraud, or "fraud in the sale of securities," see 18 U. S. C. §§ 1961(1)(B) and (D) (1988 ed., Supp. I), the broker-dealers' customers might be proximately injured by these offenses.

See, e. g., Taffet v. Southern Co., 930 F. 2d 847, 856-857 (CAll 1991); County of Suffolk v. Long Island Lighting Co., 907 F. 2d 1295, 1311-1312 (CA2 1990). However this may be, SIPC in its brief on the merits places exclusive reliance on a manipulation theory and is completely silent about the alleged parking scheme.

20 As we said in Associated General Contractors, "the infinite variety of claims that may arise make it virtually impossible to announce a black- letter rule that will dictate the result in every case."

459 U. S., at 536 Cite as: 503 U. S. 258 (1992) Opinion of the Court

allowed to sue, the district court would first need to deter- mine the extent to which their inability to collect from the broker-dealers was the result of the alleged conspiracy to manipulate, as opposed to, say, the broker-dealers' poor busi- ness practices or their failures to anticipate developments in the financial markets. Assuming that an appropriate as- sessment of factual causation could be made out, the district court would then have to find some way to apportion the possible respective recoveries by the broker-dealers and the customers, who would otherwise each be entitled to recover the full treble damages. Finally, the law would be shoulder- ing these difficulties despite the fact that those directly injured, the broker-dealers, could be counted on to bring suit for the law's vindication. As noted above, the broker- dealers have in fact sued in this case, in the persons of their SIPA trustees appointed on account of their insolvency.21

(footnote omitted). Thus, our use of the term "direct" should merely be understood as a reference to the proximate-cause enquiry that is informed by the concerns set out in the text. We do not necessarily use it in the same sense as courts before us have and intimate no opinion on results they reached. See, e. g., Sedima, 473 U. S., at 497, n. 15; id., at 522 (Mar- shall, J., dissenting); Pelletier, 921 F. 2d, at 1499-1500; Ocean Energy, supra.

21 If the trustees had not brought suit, SIPC likely could have forced their hands. To the extent consistent with SIPA, bankruptcy principles apply to liquidations under that statute. See § 78fff(b); see also § 78fff- 1(b) (to extent consistent with SIPA, SIPA trustee has same duties as trustee under Chapter 7 of Bankruptcy Code); § 78eee(b)(2)(A)(iii) (to ex- tent consistent with SIPA, court supervising SIPA liquidation has same powers and duties as bankruptcy court). And, it is generally held that a creditor can, by petitioning the bankruptcy court for an order to that effect, compel the trustee to institute suit against a third party. See In re Automated Business Systems, Inc., 642 F. 2d 200, 201 (CA6 1981). As a practical matter, it is very unlikely that SIPC will have to petition a court for such an order, given its influence over SIPA trustees. See § 78eee(b)(3) (court must appoint as trustee "such perso[n] as SIPC, in its sole discretion, specifies," which in certain circumstances may be SIPC itself); § 78eee(b)(5)(C) (SIPC's recommendation to court on trustee's com- pensation is entitled to "considerable reliance" and is, under certain cir- cumstances, binding).

274 HOLMES v. SECURITIES INVESTOR PROTECTION CORPORATION

Opinion of the Court

Indeed, the insolvency of the victim directly injured adds a further concern to those already expressed, since a suit by an indirectly injured victim could be an attempt to circum- vent the relative priority its claim would have in the directly injured victim's liquidation proceedings. See Mid-State Fertilizer Co. v. Exchange National Bank of Chicago, 877

F. 2d 1333, 1336 (CA7 1989).

As against the force of these considerations of history and policy, SIPC's reliance on the congressional admonition that RICO be "liberally construed to effectuate its remedial pur- poses," § 904(a), 84 Stat. 947, does not deflect our analysis.

There is, for that matter, nothing illiberal in our construc- tion: We hold not that RICO cannot serve to right the con- spirators' wrongs, but merely that the nonpurchasing cus- tomers, or SIPC in their stead, are not proper plaintiffs.

Indeed, we fear that RICO's remedial purposes would -more probably be hobbled than helped by SIPC's version of liberal construction: Allowing suits by those injured only indirectly would open the door to "massive and complex damages litiga- tion[, which would] not only burde[n] the courts, but [would] also undermin[e] the effectiveness of treble-damages suits."

Associated General Contractors, 459 U. S., at 545.

In sum, subrogation to the rights of the manipulation con- spiracy's secondary victims does, and should, run afoul of proximate-causation standards, and SIPC must wait on the outcome of the trustees' suit. If they recover from Holmes, SIPC may share according to the priority SIPA gives its claim. See 15 U. S. C. § 78fff-2(c).

SIPC also claims a statutory entitlement to pursue Holmes for funds advanced to the trustees for administering the liq- uidation proceedings. See Tr. of Oral Arg. 30.

Its theory here apparently is not one of subrogation, to which the stat- ute makes no reference in connection with SIPC's obligation

Cite as: 503 U. S. 258 (1992) Opinion of the Court to make such advances. See 15 U.S. C. § 78fff-3(b)(2).'

SIPC relies instead, see Brief for Respondent 37, and n. 180,

"SIPC participation-SIPC shall be deemed to be a party in interest as to all matters arising in a liquidation proceeding, with the right to be heard on all such mat- ters, and shall be deemed to have intervened with re- spect to all such matters with the same force and effect as if a petition for such purpose had been allowed by the court."

15 U. S. C. § 78eee(d).

The language is inapposite to the issue here, however. On its face, it simply qualifies SIPC as a proper party in interest in any "matter arising in a liquidation proceeding" as to which it "shall be deemed to have intervened." By extend- ing a right to be heard in a "matter" pending between other parties, however, the statute says nothing about the condi- tions necessary for SIPC's recovery as a plaintiff. How the provision could be read, either alone or with § 1964(c), to give SIPC a right to sue Holmes for money damages simply eludes us.

Petitioner urges us to go further and decide whether every RICO plaintiff who sues under § 1964(c) and claims securities fraud as a predicate offense must have purchased or sold a security, an issue on which the Circuits appear divided. 23 We decline to do so. Given what we have said in Parts II

22To the extent that SIPC's unexplained remark at oral argument, see Tr. of Oral Arg. 29-30, could be understood to rest its claim for recovery of these advances on a theory of subrogation, it came too late. One looks in vain for any such argument in its brief

1 Compare 908 F. 2d, at 1465-1467 (no purchaser-seller rule under RICO); Warner v. Alexander Grant & Co., 828 F. 2d 1528, 1530 (CAll 1987) (same), with International Data Bank, Ltd. v. Zepkin, 812 F. 2d 149, 151-154 (CA4 1987) (RICO plaintiff relying on securities fraud as predicate offense must have been purchaser or seller); Brannan v. Eisenstein, 804

F. 2d 1041, 1046 (CA8 1986) (same).

276 HOLMES v. SECURITIES INVESTOR PROTECTION CORPORATION

Opinion of O'CONNOR, J.

and III, our discussion of the issue would be unnecessary to the resolution of this case. Nor do we think that leaving this question unanswered will deprive the lower courts of much-needed guidance. A review of the conflicting cases shows that all could have been resolved on proximate- causation grounds, and that none involved litigants like those in Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723 (1975), persons who had decided to forgo securities transac- tions in reliance on misrepresentations. Thus, we think it inopportune to resolve the issue today.

We hold that, because the alleged conspiracy to manipulate did not proximately cause the injury claimed, SIPC's allega- tions and the record before us fail to make out a right to sue petitioner under § 1964(c). We reverse the judgment of the Court of Appeals and remand the case for further proceed- ings consistent with this opinion.

It is so ordered.

JUSTICE O'CONNOR, with whom JUSTICE WHITE and JUSTICE STEVENS join, concurring in part and concur- ring in the judgment.

I agree with the Court that the civil action provisions of the Racketeer Influenced and Corrupt Organizations Act (RICO), 84 Stat. 941, as amended, 18 U. S. C. §§ 1961-1968 (1988 ed. and Supp. II), have a proximate cause element, and I can even be persuaded that the proximate cause issue is "fairly included" in the question on which we granted certio- rari. Ante, at 266, n. 12.

In my view, however, before de- ciding whether the Securities Investor Protection Corpora- tion (SIPC) was proximately injured by petitioner's alleged activities, we should first consider the standing question that was decided below, and briefed and argued here, and which was the only clearly articulated question on which we In resolving that question, I would hold granted certiorari.

Cite as: 503 U. S. 258 (1992) Opinion of O'CONNOR, J.

that a plaintiff need not be a purchaser or a seller to assert RICO claims predicated on violations of fraud in the sale of securities.

Section 10(b) of the Securities Exchange Act of 1934 (1934 Act) makes it unlawful for any person to use, "in connection with the purchase or sale of any security," any "manipulative or deceptive device or contrivance" in contravention of rules or regulations that the Securities and Exchange Commission (SEC) may prescribe.

15 U. S. C. § 78j(b). Pursuant to its authority under § 10(b), the SEC has adopted Rule 10b-5, which prohibits manipulative or deceptive acts "in connec- tion with the purchase or sale of any security."

§240.10b-5 (1991).

In 1971, we ratified without discussion the "established" view that § 10(b) and Rule 10b-5 created an implied right of action. Superintendent of Ins. of N. Y

v. Bankers Life & Casualty Co., 404 U. S. 6, 13, n. 9. Four

years later, in Blue Chip Stamps v. Manor Drug Stores, 421

U. S. 723 (1975), we confirmed the federal courts' "longstand-

ing acceptance" 1 of the rule that a plaintiff must have actu- ally purchased or sold the securities at issue in order to bring a Rule 10b-5 private damages action.

Id., at 733.

In this case, the District Court held that SIPC, which was neither a purchaser nor a seller of the allegedly manipulated securities, lacked standing to assert RICO claims predicated on alleged violations of § 10(b) and Rule 10b-5. App. to Pet. for Cert. 45a. The Court of Appeals reversed and held that Blue Chip Stamps' purchaser/seller limitation does not apply to suits brought under RICO. Securities Investment Pro- tection Corp. v. Vigman, 908 F. 2d 1461 (CA9 1990). An ex-

1That acceptance was not universal. E. g., Eason v. General Motors Acceptance Corp., 490 F. 2d 654, 659 (CA7 1973) (holding that "the protec- tion of [Rule 10b-5] extends to persons who, in their capacity as investors, suffer significant injury as a direct consequence of fraud in connection with a securities transaction, even though their participation in the trans- action did not involve either the purchase or the sale of a security") (Ste- vens, J.).

278 HOLMES v. SECURITIES INVESTOR PROTECTION CORPORATION

Opinion of O'CONNOR, J.

amination of the text of RICO, and a comparison with the situation the Court confronted in Blue Chip Stamps, per- suades me that the Court of Appeals' determination was correct. Because the Court's decision today leaves intact a division among the Circuits on whether Blue Chip Stamps' standing requirement applies in RICO suits, 2 I would affirm this portion of the decision below, even though we go on to hold that the alleged RICO violation did not proximately cause SIPC's injuries.

Our obvious starting point is the text of the statute under which SIPC sued. RICO makes it unlawful for any person who has engaged in a "pattern of racketeering activity" to invest, maintain an interest, or participate in an enterprise that is engaged in interstate or foreign commerce. 18

U. S. C. § 1962. "[R]acketeering activity" is defined to in-

clude a number of state and federal offenses, including any act indictable under 18 U. S. C. § 1341 (1988 ed., Supp. II) (mail fraud) or § 1343 (wire fraud), and "any offense involving ... fraud in the sale of securities ... punishable under any law of the United States." § 1961(1). RICO authorizes "[a]ny person injured in his business or property by reason of a violation of section 1962" to sue for treble damages in federal court. § 1964(c).

RICO's civil suit provision, considered on its face, has no purchaser/seller standing requirement. The statute sweeps

2Compare Securities Investment Protection Corp. v. Vigman, 908 F. 2d 1461, 1465-1467 (CA9 1990) (purchaser/seller standing limitation does not apply to RICO claims predicated on acts of fraud in the sale of securities); Warner v. Alexander Grant & Co., 828 F. 2d 1528, 1530 (CAll 1987) (same), with International Data Bank, Ltd. v. Zepkin, 812 F. 2d 149, 151-154 (CA4 1987) (standing to bring RICO action predicated on fraud in the sale of securities is limited to purchaser or seller of securities); Brannan v.

Eisenstein, 804 F. 2d 1041, 1046 (CA8 1986) (sazhe).

Cite as: 503 U. S. 258 (1992) Opinion of O'CONNOR, J.

broadly, authorizing "[alny person" who is injured by reason of a RICO violation to sue. "[P]erson" is defined to include "any individual or entity capable of holding a legal or bene- ficial interest in property." § 1961(3) (emphasis added). "In- sofar as 'any' encompasses 'all'," Mobil Oil Exploration & Producing Southeast, Inc. v. United Distribution Cos., 498

U. S. 211, 223 (1991), the words "any person" cannot reason-

ably be read to mean only purchasers and sellers of securi- ties. As we have explained in rejecting previous efforts to narrow the scope of civil RICO: "If the defendant engages in a pattern of racketeering activity in a manner forbidden by [§ 1962's] provisions, and the racketeering activities injure the plaintiff in his business or property, the plaintiff has a claim under § 1964(c). There is no room in the statutory language for an additional . . . requirement." Sedima,

S. P. R. L. v. Imrex Co., 473 U. S. 479, 495 (1985).

Of course, a RICO plaintiff "only has standing if, and can only recover to the extent that, he has been injured in his business or property by [reason of] the conduct constituting Id., at 496. We have already remarked that the violation." the requirement of injury in one's "business or property" limits the availability of RICO's civil remedies to those who have suffered injury in fact.

Id., at 497 (citing Haroco, Inc.

v. American National Bank & Trust Co. of Chicago, 747

F. 2d 384, 398 (CA7 1984)). Today, the Court sensibly holds

that the statutory words "by reason of" operate, as they do in the antitrust laws, to confine RICO's civil remedies to those whom the defendant has truly injured in some mean- ingful sense. Requiring a proximate relationship between the defendant's actions and the plaintiff's harm, however, cannot itself preclude a nonpurchaser or nonseller of securi- ties, alleging predicate acts of fraud in the sale of securities, from bringing suit under § 1964(c). Although the words "in- jury in [one's] business or property" and "by reason of" are words of limitation, they do not categorically exclude non-

280 HOLMES v. SECURITIES INVESTOR PROTECTION CORPORATION

Opinion of O'CONNOR, J.

purchasers and nonsellers of securities from the universe of RICO plaintiffs.

Petitioner argues that the civil suit provisions of § 1964(c) are not as sweeping as they appear because § 1964(c) incorpo- rates the standing requirements of the predicate acts al- leged. But § 1964(c) focuses on the "injur[y]" of any "per- son," not the legal right to sue of any proper plaintiff for a predicate act.

If standing were to be determined by refer- ence to the predicate offenses, a private RICO plaintiff could not allege as predicates many of the acts that constitute the definition of racketeering activity. The great majority of acts listed in § 1961(1) are criminal offenses for which only a State or the Federal Government is the proper party to bring suit.

In light of § 1964(c)'s provision that "any person" injured by reason of a RICO violation may sue, I would not accept that this same section envisions an overlay of stand- ing requirements from the predicate acts, with the result that many RICO suits could be brought only by govern- ment entities.

Nor can I accept the contention that, even if § 1964(c) does not normally incorporate the standing requirements of the predicate acts, an exception should be made for "fraud in the sale of securities" simply because it is well established that a plaintiff in a civil action under § 10(b) and Rule 10b-5 must be either a purchaser or seller of securities. A careful read- ing of § 1961(1) reveals the flaw in this argument. The rele- vant predicate offense is "any offense involving ... fraud in the sale of securities . . . punishable under any law of the United States." The embracing words "offense ... punish- able under any law of the United States" plainly signify the elements necessary to bring a criminal prosecution. See Trane Co. v. O'Connor Securities, 718 F. 2d 26, 29 (CA2 1983); Dan River, Inc. v. Icahn, 701 F. 2d 278, 291 (CA4 1983).

To the extent that RICO's reference to an "offense involving fraud in the sale of securities" encompasses conduct that vio- lates § 10(b), see infra, at 282-283, the relevant predicate is

Cite as: 503 U. S. 258 (1992) Opinion of O'CONNOR, J.

defined not by § 10(b) itself, but rather by § 32(a) of the 1934 Act, 15 U. S. C. § 78ff(a), which authorizes criminal sanctions against any person who willfully violates the Act or rules promulgated thereunder. As we have previously made clear, the purchaser/seller standing requirement for private civil actions under § 10(b) and Rule 10b-5 is of no import in criminal prosecutions for willful violations of those provi- sions. United States v. Naftalin, 441 U. S. 768, 774, n. 6 (1979); SEC v. National Securities, Inc., 393 U. S. 453, 467,

n. 9 (1969). Thus, even if Congress intended RICO's civil

suit provision to subsume established civil standing require- ments for predicate offenses, that situation is not presented here.

Although the civil suit provisions of § 1964(c) lack a purchaser/seller requirement, it is still possible that one lurks in § 1961(1)'s catalog of predicate acts; i. e., it is possible that § 1961(1) of its own force limits RICO standing to the actual parties to a sale. As noted above, the statute defines "racketeering activity" to include "any offense involving ... fraud in the sale of securities ... punishable under any law of the United States." Unfortunately, the term "fraud in the sale of securities" is not further defined. "[A]ny offense ... punishable under any law of the United States" presum- ably means that Congress intended to refer to the federal securities laws and not common-law tort actions for fraud.

Unlike most of the predicate offenses listed in § 1961(1), how- ever, there is no cross-reference to any specific sections of the United States Code. Nor is resort to the legislative his- tory helpful in clarifying what kinds of securities violations Congress contemplated would be covered. See generally Bridges, Private RICO Litigation Based Upon "Fraud in the Sale of Securities," 18 Ga. L. Rev. 43, 58-59 (1983) (discussing paucity of legislative history); Note, RICO and Securities Fraud: A Workable Limitation, 83 Colum. L. Rev. 1513, 1536- 1539 (1983) (reviewing testimony before Senate Judiciary Committee).

282 HOLMES v. SECURITIES INVESTOR PROTECTION CORPORATION

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Which violations of the federal securities laws, if any, con- stitute a "fraud in the sale of securities" within the meaning of § 1961(1) is a question that has generated much ink and little agreement among courts 3 or commentators,4 and one

sCompare First Pacific Bancorp, Inc. v. Bro, 847 F. 2d 542, 546 (CA9 1988) (violations of §§ 13(d) and 14(e) of the 1934 Act cannot be RICO predi- cate offenses because neither provision embraces fraud "in the sale" of a security); In re Par Pharmaceutical, Inc. Securities Litigation, 733

F. Supp. 668 (SDNY 1990) (violation of § 10(b) and Rule lob-5 involving

fraud in connection with the purchase of securities cannot be a predicate offense), with In re Catanella and E. F Hutton & Co. Securities Litiga- tion, 583 F. Supp. 1388, 1425, n. 56 (ED Pa. 1984) (reach of RICO claims predicated on violations of § 10b and Rule 10b-6 encompasses "both pur- chases and sales"); Lou v. Belzberg, 728 F. Supp. 1010, 1026 (SDNY 1990) (violation of Hart-Scott-Rodino reporting requirement relates to "fraud in the sale of securities" and may constitute a RICO predicate act); Spen- cer Cos. v. Agency Rent-A-Car, Inc., 1981-1982 CCH Fed. Sec. L. Rep.

98,361, p. 92,215 (Mass. 1981) (violation of § 13(d) reporting requirements is RICO predicate act because "[t]he remedial purpose of the statute would appear to encompass fraud committed by the purchaser of securities, as well as by the seller").

4 See, e. g., Bridges, Private RICO Litigation Based Upon "Fraud in the Sale of Securities," 18 Ga. L. Rev. 43, 81 (1983) ("fraud in the sale of securi- ties" encompasses any violation of a specific antifraud or antimanipulation provision of the securities laws and regulations or use of stolen or counter- feit securities, as long as violation is by means of an actual sale of secu- rities); Johnson, Predators Rights: Multiple Remedies for Wall Street Sharks Under the Securities Laws and RICO, 10 J. Corp. L. 3, 39-40 (1984) (allegations of violations of antifraud provisions of the federal securities laws should satisfy "fraud in the sale of securities" definition); Long, Tre- ble Damages for Violations of the Federal Securities Laws: A Suggested Analysis and Application of the RICO Civil Cause of Action, 85 Dick. L.

Rev. 201, 225-226 (1981) (any violation of federal securities laws other than reporting or "housekeeping" measures suffices to assert predicate act of "fraud in the sale of securities"); MacIntosh, Racketeer Influenced and Corrupt Organizations Act: Powerful New Tool of the Defrauded Securi- ties Plaintiff, 31 Kan. L. Rev. 7, 30-37 (1982) ("fraud in the sale of securi- ties" is both broader and narrower than antifraud provisions of securities

The Role of Civil RICO in Securities Litigation, 65 Notre Dame L. Rev.

896, 944-947 (1990) (securities fraud is a predicate offense only if fraud

Cite as: 503 U. S. 258 (1992) Opinion of O'CONNOR, J.

which we need not definitively resolve here. The statute unmistakably requires that there be fraud, sufficiently willful to constitute a criminal violation, and that there be a sale of securities. At the same time, however, I am persuaded that Congress' use of the word "sale" in defining the predicate offense does not necessarily dictate that a RICO plaintiff have been a party to an executed sale.

Section 1961(1)'s list of racketeering offenses provides the RICO predicates for both criminal prosecutions and civil actions. Obviously there is no requirement that the Gov- ernment be party to a sale before it can bring a RICO pros- ecution predicated on "fraud in the sale of securities."

Accordingly, any argument that the offense itself embodies a standing requirement must apply only to private ac- tions. That distinction is not tenable, however. By includ- ing a private right of action in RICO, Congress intended to bring "the pressure of 'private attorneys general' on a seri- ous national problem for which public prosecutorial re- sources [were] deemed inadequate." Agency Holding Corp.

v. Malley-Duff & Associates, Inc., 483 U. S. 143, 151 (1987).

Although not everyone can qualify as an appropriate "pri- vate attorney general," the prerequisites to the role are ar- ticulated, not in the definition of the predicate act, but in the civil action provisions of § 1964(c)-a plaintiff must allege "injur[y] in his business or property by reason of" a RICO violation.

Construing RICO's reference to "fraud in the sale of secu- rities" to limit standing to purchasers and sellers would be

occurs in actual sale of a security); Tyson & August, The Williams Act After RICO: Has the Balance Tipped in Favor of Incumbent Manage- ment?, 35 Hastings L. J. 53, 79-80 (1983) (criminal violations of antifraud provisions of the securities laws should constitute racketeering activity, provided that the conduct is in connection with purchase or sale of securi- ties); Note, Application of the Racketeer Influenced and Corrupt Organiza- tions Act (RICO) to Securities Violations, 8 J. Corp. L. 411, 430-431 (1983) ("fraud in the sale of securities" applies to fraudulent purchase as well as fraudulent sale of securities).

284 HOLMES v. SECURITIES INVESTOR PROTECTION CORPORATION

Opinion of O'CONNOR, J.

in tension with our reasoning in Blue Chip Stamps. In that case, the Court admitted that it was not "able to divine from the language of § 10(b) the express 'intent of Congress' as to the contours of a private cause of action under Rule 10b-5."

421 U. S., at 737. The purchaser/seller standing limitation in Rule 10b-5 damages actions thus does not stem from a construction of the phrase "in connection with the purchase or sale of any security." Rather, it rests on the relationship between § 10(b) and other provisions of the securities laws, id., at 733-736, and the practical difficulties in granting standing in the absence of an executed transaction, id., at 737-749, neither of which are relevant in the RICO context.

Arguably, even if § 10(b)'s reference to fraud "in connec- tion with" the sale of a security is insufficient to limit the plaintiff class to purchasers and sellers, § 1961(1)'s reference to fraud "in" the sale of a security performs just such a nar- rowing function. But we have previously had occasion to express reservations on the validity of that distinction.

In United States v. Naftalin, 441 U. S. 768 (1979), we reinstated the conviction of a professional investor who engaged in fraudulent "short selling" by placing orders with brokers to sell shares of stock which he falsely represented that he owned. This Court agreed with the District Court that Naftalin was guilty of fraud "in" the "offer" or "sale" of secu- rities in violation of § 17(a)(1) of the Securities Act of 1933,

15 U. S. C. § 77q(a)(1), even though the fraud was perpetrated

on the brokers, not their purchasing clients. The Court

"[Naftalin] contends that the requirement that the fraud be 'in' the offer or sale connotes a narrower range of activities than does the phrase 'in connection with,' which is found in § 10(b) .... First, we are not neces- sarily persuaded that 'in' is narrower than 'in connection with.' Both Congress, see H. R. Rep. No. 85, 73d Cong., 1st Sess., 6 (1933), and this Court, see Superintendent of Insurance v. Bankers Life & Cas. Co., 404 U. S. 6, 10

Cite as: 503 U. S. 258 (1992) Opinion of O'CONNOR, J.

(1971), have on occasion used the terms interchangeably.

But even if 'in' were meant to connote a narrower group of transactions than 'in connection with,' there is noth- ing to indicate that 'in' is narrower in the sense insisted upon by Naftalin." 441 U. S., at 773, n. 4.

So also in today's case. To the extent that there is a meaningful difference between Congress' choice of "in" as opposed to "in connection with," I do not view it as limiting the class of RICO plaintiffs to those who were parties to a sale. Rather, consistent with today's decision, I view it as confining the class of defendants to those proximately re- sponsible for the plaintiff's injury and excluding those only tangentially "connect[ed] with" it.

In Blue Chip Stamps, we adopted the purchaser/seller standing limitation in § 10(b) cases as a prudential means of avoiding the problems of proof when no security was traded and the nuisance potential of vexatious litigation. 421 U. S., In that case, however, we were confronted with at 738-739. limiting access to a private cause of action that was judicially implied. We expressly acknowledged that "if Congress had legislated the elements of a private cause of action for dam- ages, the duty of the Judicial Branch would be to administer the law which Congress enacted; the Judiciary may not cir- cumscribe a right which Congress has conferred because of any disagreement it might have with Congress about the Id., at 748. To wisdom of creating so expansive a liability." be sure, the problems of expansive standing identified in In addition to Blue Chip Stamps are exacerbated in RICO. the threat of treble damages, a defendant faces the stigma of being labeled a "racketeer." Nonetheless, Congress has legislated the elements of a private cause of action under RICO. Specifically, Congress has authorized "[any person injured in his business or property by reason of" a RICO violation to bring suit under §1964(c). Despite the very real specter of vexatious litigation based on speculative damages, it is within Congress' power to create a private right of ac-

286 HOLMES v. SECURITIES INVESTOR PROTECTION CORPORATION

SCAIA, J., concurring in judgment

tion for plaintiffs who have neither bought nor sold securi- ties. For the reasons stated above, I think Congress has done so. "That being the case, the courts are without au- thority to restrict the application of the statute." United States v. Turkette, 452 U. S. 576, 587 (1981).

In sum, we granted certiorari to resolve a split among the Circuits as to whether a nonpurchaser or nonseller of securi- ties could assert RICO claims predicated on violations of § 10(b) and Rule 10b-5. See cases cited n. 1, supra. I rec- ognize that, like the case below, some of those decisions might have been more appropriately cast in terms of proxi- mate causation. That we have now more clearly articulated the causation element of a civil RICO action does not change the fact that the governing precedent in several Circuits is in disagreement as to Blue Chip Stamps' applicability in the RICO context. Because that issue was decided below and fully addressed here, we should resolve it today. I would sustain the Court of Appeals' determination that RICO plaintiffs alleging predicate acts of fraud in the sale of securi- ties need not be actual purchasers or sellers of the securities at issue. Accordingly, I join all of the Court's opinion except Part IV.

JUSTICE SCALIA, concurring in the judgment. I agree with JUSTICE O'CONNOR that in deciding this case we ought to reach, rather than avoid, the question on which I also agree with her on the answer we granted certiorari. to that question: that the purchaser-seller rule does not apply in civil RICO cases alleging as predicate acts viola- tions of Securities and Exchange Commission Rule 10b-5, 17 CFR §240.10b-5 (1991). My reasons for that conclusion, however, are somewhat different from hers.

The ultimate question here is statutory standing: whether the so-called nexus (mandatory legalese for "connection") be- tween the harm of which this plaintiff complains and the de- fendant's so-called predicate acts is of the sort that will sup-

Cite as: 503 U. S. 258 (1992) SCALIA, J., concurring in judgment port an action under civil RICO. See Sedima, S. P. R. L. v.

Imrex Co., 473 U. S. 479, 497 (1985). One of the usual ele- ments of statutory standing is proximate causality. It is re- quired in RICO not so much because RICO has language similar to that of the Clayton Act, which in turn has language similar to that of the Sherman Act, which, by the time the Clayton Act had been passed, had been interpreted to in- clude a proximate-cause requirement; but rather, I think, be- cause it has always been the practice of common-law courts (and probably of all courts, under all legal systems) to re- quire as a condition of recovery, unless the legislature specifically prescribes otherwise, that the injury have been proximately caused by the offending conduct. Life is too short to pursue every human act to its most remote conse- quences; "for want of a nail, a kingdom was lost" is a com- mentary on fate, not the statement of a major cause of action against a blacksmith. See Associated General Contractors of Cal., Inc. v. Carpenters, 459 U. S. 519, 536 (1983).

Yet another element of statutory standing is compliance with what I shall call the "zone-of-interests" test, which seeks to determine whether, apart from the directness of the injury, the plaintiff is within the class of persons sought to be benefited by the provision at issue.* Judicial inference of a zone-of-interests requirement, like judicial inference of a proximate-cause requirement, is a background practice against which Congress legislates. See Block v. Commu- nity Nutrition Institute, 467 U. S. 340, 345-348 (1984).

Sometimes considerable limitations upon the zone of inter- ests are set forth explicitly in the statute itself-but rarely, if ever, are those limitations so complete that they are

*My terminology may not be entirely orthodox.

It may be that proxi- mate causality is itself an element of the zone-of-interests test as that phrase has ordinarily been used, see, e. g., Wyoming v. Oklahoma, 502

U. S. 437, 473 (1992) (SCALIA, J., dissenting), but that usage would leave

us bereft of terminology to connote those aspects of the "violation-injury connection" aspect of standing that are distinct from proximate causality.

288 HOLMES v. SECURITIES INVESTOR PROTECTION CORPORATION

SCALIA, J., concurring in judgment deemed to preclude the judicial inference of others.

If, for example, a securities fraud statute specifically conferred a cause of action upon "all purchasers, sellers, or owners of stock injured by securities fraud," I doubt whether a stock- holder who suffered a heart attack upon reading a false earn- ings report could recover his medical expenses. So also here. The phrase "any person injured in his business or property by reason of" the unlawful activities makes clear that the zone of interests does not extend beyond those in- jured in that respect-but does not necessarily mean that it includes all those injured in that respect. Just as the phrase does not exclude normal judicial inference of proxi- mate cause, so also it does not exclude normal judicial infer- ence of zone of interests.

It seems to me obvious that the proximate-cause test and the zone-of-interests test that will be applied to the various causes of action created by 18 U. S. C. § 1964 are not uniform, but vary according to the nature of the criminal offenses upon which those causes of action are based. The degree of proximate causality required to recover damages caused by predicate acts of sports bribery, for example, see 18 U. S. C. § 224, will be quite different from the degree required for damages caused by predicate acts of transporting stolen property, see 18 U. S. C. §§2314-2315. And so also with the applicable zone-of-interests test: It will vary with the under- lying violation.

(Where the predicate acts consist of differ- ent criminal offenses, presumably the plaintiff would have to be within the degree of proximate causality and within the zone of interests as to all of them.)

It also seems to me obvious that unless some reason for making a distinction exists, the background zone-of-interests test applied to one cause of action for harm caused by viola- tion of a particular criminal provision should be the same as the test applied to another cause of action for harm caused by violation of the same provision.

It is principally in this respect that I differ from JUSTICE O'CONNOR's analysis,

Cite as: 503 U. S. 258 (1992) SCALIA, J., concurring in judgment ante, at 280 (opinion concurring in part and concurring in judg- ment).

If, for example, one statute gives persons injured by a particular criminal violation a cause of action for damages, and another statute gives them a cause of action for equita- ble relief, the persons coming within the zone of interests of those two statutes would be identical. Hence the relevance to this case of our decision in Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723 (1975). The predicate acts of securities fraud alleged here are violations of Rule 10b-5; and we held in Blue Chip Stamps that the zone of interests for civil damages attributable to violation of that provision does not include persons who are not purchasers or sellers.

As I have described above, just as RICO's statutory phrase "injured in his business or property by reason of" does not extend the rule of proximate causation otherwise applied to congressionally created causes of action, so also it should not extend the otherwise applicable rule of zone of interests.

What prevents that proposition from being determinative here, however, is the fact that Blue Chip Stamps did not involve application of the background zone-of-interests rule to a congressionally created Rule 10b-5 action, but rather specification of the contours of a Rule 10b-5 action "implied" (i. e., created) by the Court itself-a practice we have since happily abandoned, see, e. g., Touche Ross & Co. v. Reding- ton, 442 U. S. 560, 568-571, 575-576 (1979). The policies that we identified in Blue Chip Stamps, supra, as supporting the purchaser-seller limitation (namely, the difficulty of as- sessing the truth of others' claims, see id., at 743-747, and the high threat of "strike" or nuisance suits in securities liti- gation, see id., at 740-741) are perhaps among the factors properly taken into account in determining the zone of inter- ests covered by a statute, but they are surely not alone enough to restrict standing to purchasers or sellers under a text that contains no hint of such a limitation.

I think, in other words, that the limitation we approved in Blue Chip Stamps was essentially a legislative judgment rather than an

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SCALIA, J., concurring in judgment

interpretive one. Cf. Franklin v. Gwinnett County Public Schools, ante, at 77 (SCALIA, J., concurring in judgment).

It goes beyond the customary leeway that the zone-of- interests test leaves to courts in the construction of statu- tory texts.

In my view, therefore, the Court of Appeals correctly re- jected the assertion that SIPC had no standing because it was not a purchaser or seller of the securities in question. A proximate-cause requirement also applied, however, and I agree with the Court that that was not met. For these rea- sons, I concur in the judgment.