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Securities Investor Protection Corp. v. Vigman, 764 F.2d 1309, 54 USLW 2052, Fed. Sec. L. Rep. P 92,222

Facts

The Securities Investor Protection Corporation (SIPC), along with trustees Eugene W. Bell and John L. Britton, filed a securities fraud action against seventy-five defendants in the Central District of California. The district court dismissed four defendants, claiming a lack of personal jurisdiction and improper venue. The plaintiffs alleged that the defendants engaged in manipulative schemes affecting member broker-dealers and the investing public, specifically concerning the stock of seven companies traded in the over-the-counter market.

Appellants, Securities Investor Protection Corporation (“SIPC”), Eugene W. Bell and John L. Britton appeal the dismissal of four of seventy-five defendants from the securities fraud action brought in the United States District Court for the Central District of California.

Issue

Whether the district court erred in finding that it lacked personal jurisdiction over certain defendants and whether it failed to apply a co-conspirator venue theory in a securities action.

There are two issues to be resolved by this court: (1) Whether the district court erred in finding that it lacked personal jurisdiction over certain defendants in an action brought under the Securities Exchange Act of 1934; and (2) Whether the district court erred when it failed to apply a co-conspirator venue theory to an action under the Securities Exchange Act of 1934.

Rule

Section 27 of the Securities Exchange Act authorizes nationwide service of process and confers personal jurisdiction over defendants with minimum contacts with the United States, regardless of the specific federal district.

Section 27 of the Securities Exchange Act of 1934 ( 15 U.S.C. § 78aa ), grants jurisdiction to the federal courts and provides for venue and service of process.

Analysis

The Court of Appeals determined that the district court erred in its dismissal by not recognizing that Section 27 allows for nationwide service of process and personal jurisdiction over defendants who have minimum contacts with the United States. The court emphasized that the jurisdictional analysis should focus on the defendants' connections to the U.S. as a whole rather than the specific district. Additionally, the court supported the application of a co-conspirator venue theory, which allows for venue to be established in a district where any defendant is found, even if some defendants did not commit acts within that district.

In view of the foregoing, we find that there are rules and statutory authority which support nationwide service under the Act and confer personal jurisdiction in the Central District of California.

Conclusion

The Court of Appeals reversed the district court's dismissal of the defendants and remanded the case for further proceedings, allowing the plaintiffs to amend their pleadings to establish the necessary connections between the defendants and the alleged securities fraud.

REVERSED and REMANDED for further proceedings consistent with this opinion.

Who won?

The plaintiffs, Securities Investor Protection Corporation (SIPC), prevailed in the appeal because the appellate court found that the district court had erred in its dismissal based on personal jurisdiction and venue issues.

Appellants argue that (1) Section 27 of the Act ( 15 U.S.C. § 78aa ) provides for nationwide service of process, thereby conferring personal jurisdiction over defendants Ferri and Mobile, and (2) the district court applied a narrower standard for determining venue than that allowed under the Act, and it should have adopted a co-conspirator theory of venue.

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