Superintendent of Insurance v. Bankers Life & Casualty Co.
United States Supreme Court
404 U.S. 6 (1971)
Begole (defendant) and an accomplice arranged a $5 million loan to purchase all of Manhattan Casualty Co.'s (Manhattan) stock from Bankers Life & Casualty (defendant), then caused Manhattan to sell its own U.S. Treasury bonds and used the proceeds to repay the loan that had funded the stock purchase in the first place. New York's Superintendent of Insurance (plaintiff), representing Manhattan, sued numerous parties for securities fraud under § 10(b) and Rule 10b-5, but the trial court dismissed the claims, and the appellate court affirmed on the ground that no investor was injured and the securities market itself remained untainted, leaving no remedy available under Rule 10b-5.
Whether Rule 10b-5 may apply to transactions in which third-party creditors, rather than investors, ultimately bear the loss caused by securities fraud.