404 U.S. 6, 12-13 (1971)
Manhattan Casualty Co., represented by the petitioner Superintendent of Insurance of New York, was allegedly defrauded in connection with the sale of its securities.1 Bankers Life & Casualty Co. agreed to sell all of Manhattan's stock to Begole for $5,000,000.2 Begole conspired with Bourne and others to pay for the stock with Manhattan's assets.3
They arranged through Garvin, Bantel & Co. to obtain a $5,000,000 check from Irving Trust Co. without having funds on deposit.4 On the same day they purchased the stock and installed Sweeny as president of Manhattan.5 Manhattan sold its Treasury bonds for $4,854,552.67, with the proceeds plus cash credited to its account at Irving Trust to cover the check.6
Irving Trust then issued a second $5,000,000 check to Manhattan.7 Sweeny used it to obtain a certificate of deposit from Belgian-American Bank & Trust Co. The certificate was endorsed over to New England Note Corp. The certificate was pledged to Belgian-American Banking Corp. to secure a loan that repaid Irving Trust.8
Manhattan's books showed only the bond sale and certificate purchase, omitting the misappropriation.9 The District Court dismissed the complaint.10 The Court of Appeals affirmed.11 The Supreme Court granted a writ of certiorari to review the case.12
Whether the complaint charges a cause of action under § 10(b) of the Securities Exchange Act of 1934 with respect to the sale by Manhattan of its Treasury bonds?13
Section 10(b) of the Securities Exchange Act of 1934 makes it unlawful for any person to use or employ, in connection with the purchase or sale of any security, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.14 Rule 10b-5 prohibits any person from employing any device, scheme, or artifice to defraud.15 Rule 10b-5 also prohibits making any untrue statement of a material fact or omitting to state a material fact necessary to make the statements made, in the light of the circumstances under which they were made, not misleading.16 Rule 10b-5 further prohibits engaging in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.17
Yes. Manhattan was the seller of Treasury bonds and was clearly protected by § 10(b).18 There certainly was an act or practice within the meaning of Rule 10b-5 which operated as a fraud or deceit on Manhattan, the seller of the Government bonds.19 To be sure, the full market price was paid for those bonds, but the seller was duped into believing that it, the seller, would receive the proceeds.20
The fact that the fraud was perpetrated by an officer of Manhattan and his outside collaborators is irrelevant to our problem.21 Likewise irrelevant is the fact that the proceeds of the sale that were due the seller were misappropriated.22 Section 10(b) must be read flexibly, not technically and restrictively, and since there was a sale of a security and fraud was used in connection with it, there is redress under § 10(b).23
The complaint charges a cause of action under § 10(b) of the Securities Exchange Act of 1934 with respect to the sale by Manhattan of its Treasury bonds.24