Securities Law in the Sixties: The Supreme Court, the Second Circuit, and the Triumph of Purpose Over Text

This Article analyzes the Supreme Court’s leading securities cases from 1962 to 1972—SEC v. Capital Gains Research Bureau, Inc.; J.I. Case Co. v. Borak; Mills v. Electric Auto-Lite Co.; Superintendent of Insurance v. Bankers Life & Casualty Co.; and Affiliated Ute of Utah v. United States—relying not just on the published opinions, but also the Justices’ internal letters, memos, and conference notes. The Sixties Court did not simply apply the text as enacted by Congress, but instead invoked the securities laws’ purposes as a guide to interpretation. The Court became a partner of Congress in shaping the securities laws, rather than a mere agent. The interpretive space opened by the Court’s invocation of purpose allowed a dramatic expansion in the law of securities fraud. Encouraged by the Court’s dynamic statutory interpretation doctrine, the Second Circuit—the “Mother Court” for securities law—developed new causes of action that transformed both public and private enforcement of the securities laws. The insider trading prohibition found a new home in the flexible confines of Rule 10b-5. Implied private rights of action encouraged class actions to flourish. The growth of fiduciary duty in the 1960s created a blueprint for “federal corporation law.” The Supreme Court’s “counterrevolutionary” turn in the 1970s cut back on purposivism and the doctrinal innovations of the Sixties, but the approaches to insider trading and private rights of action survived, remaining pillars of securities regulation today