Touche Ross & Co. v. Redington

Supreme Court of the United States · 1979 · Corporations

CorporationsSecurities RegulationImplied Private Rights of ActionSection 17(a)Securities Exchange Act of 1934implied cause of actioncongressional intentstatutory construction

Facts

Touche Ross served as Weis Securities' independent certified public accountant and prepared and certified annual financial reports that Weis was required to file under § 17(a) of the Securities Exchange Act. After Weis became insolvent and entered liquidation, SIPC advanced $14 million to satisfy customer claims, while additional customer claims remained unpaid. SIPC and the trustee alleged that Weis officers concealed losses by falsifying required reports and that Touche Ross improperly audited and certified the 1972 financial statements, preventing regulators from discovering Weis' true condition in time to avert or lessen the liquidation losses. They sought damages under an implied private right of action under § 17(a), along with state-law claims.

Issue

Does § 17(a) of the Securities Exchange Act of 1934 imply a private cause of action for damages in favor of a broker-dealer's customers, or their representatives, against accountants who allegedly make or certify misleading reports required by that section?

Rule

The existence of a statutory cause of action is a question of statutory construction, and the central inquiry is whether Congress intended to create a private right of action. Where the statute's text creates no private rights and does not proscribe conduct as unlawful, and the legislative history is silent, no private damages remedy will be implied; a jurisdictional provision like § 27 cannot itself create a cause of action.

🔒

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

Lakefront Brokerage, a registered broker-dealer in Chicago, was required by a federal securities statute to keep records and file annual financial reports with the Commission. After the firm failed, customers sued its outside auditor, Nora Finch, in federal court for damages, alleging that Finch negligently certified inaccurate reports and delayed regulatory intervention.

If the statute merely requires regulated firms to keep records and file reports as the Commission prescribes, but does not create private rights or expressly authorize damages suits, what is the strongest argument against implying a private federal damages remedy?

Explanation. The majority held that whether a cause of action exists is a question of statutory construction, with the central inquiry being congressional intent. Analysis begins with the statutory text. Where the provision simply requires records and reports for regulatory purposes, creates no private rights, and does not provide a damages remedy, there is no basis to imply one.