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Full Opinion
ERNST & ERNST
v.
HOCHFELDER ET AL.
Supreme Court of United States.
*187 Robert L. Berner, Jr., argued the cause for petitioner. With him on the briefs were Francis D. Morrissey, Michael J. Madda, and Kenneth H. Lang.
Willard L. King argued the cause and filed a brief for respondents Hochfelder et al. Willard J. Lassers argued the cause for respondents Allison et al. With him on the brief were Donald L. Vetter, Leon M. Despres, and Alex Elson.
Paul Gonson argued the cause for the Securities and Exchange Commission as amicus curiae urging affirmance. With him on the brief were Solicitor General Bork, Deputy Solicitor General Friedman, Lawrence E. Nerheim, and Charles E. H. Luedde.[*]
MR. JUSTICE POWELL delivered the opinion of the Court.
The issue in this case is whether an action for civil damages may lie under § 10 (b) of the Securities Exchange Act of 1934 (1934 Act), 48 Stat. 891, 15 U. S. C. *188 § 78j (b), and Securities and Exchange Commission Rule 10b-5, 17 CFR § 240.10b-5 (1975), in the absence of an allegation of intent to deceive, manipulate, or defraud on the part of the defendant.
I
Petitioner, Ernst & Ernst, is an accounting firm. From 1946 through 1967 it was retained by First Securities Company of Chicago (First Securities), a small brokerage firm and member of the Midwest Stock Exchange and of the National Association of Securities Dealers, to perform periodic audits of the firm's books and records. In connection with these audits Ernst & Ernst prepared for filing with the Securities and Exchange Commission (Commission) the annual reports required of First Securities under § 17 (a) of the 1934 Act, 15 U. S. C. § 78q (a).[1] It also prepared for First Securities responses to the financial questionnaires of the Midwest Stock Exchange (Exchange).
*189 Respondents were customers of First Securities who invested in a fraudulent securities scheme perpetrated by Leston B. Nay, president of the firm and owner of 92% of its stock. Nay induced the respondents to invest funds in "escrow" accounts that he represented would yield a high rate of return. Respondents did so from 1942 through 1966, with the majority of the transactions occurring in the 1950's. In fact, there were no escrow accounts as Nay converted respondents' funds to his own use immediately upon receipt. These transactions were not in the customary form of dealings between First Securities and its customers. The respondents drew their personal checks payable to Nay or a designated bank for his account. No such escrow accounts were reflected on the books and records of First Securities, and none was shown on its periodic accounting to respondents in connection with their other investments. Nor were they included in First Securities' filings with the Commission or the Exchange.
This fraud came to light in 1968 when Nay committed suicide, leaving a note that described First Securities as bankrupt and the escrow accounts as "spurious." Respondents subsequently filed this action[2] for damages against Ernst & Ernst[3] in the United States District Court for the Northern District of Illinois under *190 § 10 (b) of the 1934 Act. The complaint charged that Nay's escrow scheme violated § 10 (b) and Commission Rule 10b-5,[4] and that Ernst & Ernst had "aided and abetted" Nay's violations by its "failure" to conduct proper audits of First Securities. As revealed through discovery, respondents' cause of action rested on a theory of negligent nonfeasance. The premise was that Ernst & Ernst had failed to utilize "appropriate auditing procedures" in its audits of First Securities, thereby failing to discover internal practices of the firm said to prevent an effective audit. The practice principally relied on was Nay's rule that only he could open mail addressed to him at First Securities or addressed to First Securities to his attention, even if it arrived in his absence. Respondents contended that if Ernst & Ernst had conducted a proper audit, it would have discovered this "mail rule." The existence of the rule then would have been disclosed in reports to the Exchange and to the Commission by Ernst & Ernst as an irregular procedure that prevented an effective audit. This would have led to an investigation of Nay that would have revealed the fraudulent scheme. Respondents specifically disclaimed the existence of fraud or intentional misconduct on the part of Ernst & Ernst.[5]
*191 After extensive discovery the District Court granted Ernst & Ernst's motion for summary judgment and dismissed the action. The court rejected Ernst & Ernst's contention that a cause of action for aiding and abetting a securities fraud could not be maintained under § 10 (b) and Rule 10b-5 merely on allegations of negligence. It concluded, however, that there was no genuine issue of material fact with respect to whether Ernst & Ernst had conducted its audits in accordance with generally accepted auditing standards.[6]
The Court of Appeals for the Seventh Circuit reversed and remanded, holding that one who breaches a duty of inquiry and disclosure owed another is liable in damages for aiding and abetting a third party's violation of Rule 10b-5 if the fraud would have been discovered or prevented but for the breach. 503 F. 2d 1100 (1974).[7]*192 The court reasoned that Ernst & Ernst had a common-law and statutory duty of inquiry into the adequacy of First Securities' internal control system because it had contracted to audit First Securities and to prepare for filing with the Commission the annual report of First Securities' financial condition required under § 17 of the 1934 Act and Rule 17a-5.[8] The court further reasoned that respondents were beneficiaries of the statutory duty to inquire[9] and the related duty to disclose any material *193 irregularities that were discovered. 503 F. 2d, at 1105-1111. The court concluded that there were genuine issues of fact as to whether Ernst & Ernst's failure to discover and comment upon Nay's mail rule[10] constituted a breach of its duties of inquiry and disclosure, id., at 1111, and whether inquiry and disclosure would have led to the discovery or prevention of Nay's fraud. Id., at 1115.[11]
We granted certiorari to resolve the question whether a private cause of action for damages will lie under § 10 (b) and Rule 10b-5 in the absence of any allegation of "scienter"intent to deceive, manipulate, or defraud.[12] 421 U. S. 909 (1975). We conclude that it will not and therefore we reverse.[13]
*194 II
Federal regulation of transactions in securities emerged as part of the aftermath of the market crash in 1929. *195 The Securities Act of 1933 (1933 Act), 48 Stat. 74, as amended, 15 U. S. C. § 77a et seq., was designed to provide investors with full disclosure of material information concerning public offerings of securities in commerce, to protect investors against fraud and, through the imposition of specified civil liabilities, to promote ethical standards of honesty and fair dealing. See H. R. Rep. No. 85, 73d Cong., 1st Sess., 1-5 (1933). The 1934 Act was intended principally to protect investors against manipulation of stock prices through regulation of transactions upon securities exchanges and in over-the-counter markets, and to impose regular reporting requirements on companies whose stock is listed on national securities exchanges. See S. Rep. No. 792, 73d Cong., 2d Sess., 1-5 (1934). Although the Acts contain numerous carefully drawn express civil remedies and criminal penalties, Congress recognized that efficient regulation of securities trading could not be accomplished under a rigid statutory program. As part of the 1934 Act Congress created the Commission, which is provided with an arsenal of flexible enforcement powers. See, e. g., 1933 Act §§ 8, 19, 20, 15 U. S. C. §§ 77h, 77s, 77t; 1934 Act §§ 9, 19, 21, 15 U. S. C. §§ 78i, 78s, 78u.
Section 10 of the 1934 Act makes it "unlawful for any person . . . (b) [t]o 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." 15 U. S. C. § 78j. In 1942, acting pursuant to the power conferred by § 10 (b), the Commission promulgated Rule 10b-5, which now provides:
"Employment of manipulative and deceptive devices.
*196 "It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
"(a) To employ any device, scheme, or artifice to defraud.
"(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
"(c) To engage 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."
Although § 10 (b) does not by its terms create an express civil remedy for its violation, and there is no indication that Congress.[14] or the Commission when adopting Rule 10b-5,[15] contemplated such a remedy, the existence of a private cause of action for violations of the statute and the Rule is now well established. Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723, 730 (1975); Affiliated Ute Citizens v. United States, 406 U. S. 128, 150-154 (1972); Superintendent of Insurance v. Bankers Life & Cas. Co., 404 U. S. 6, 13 n. 9 (1971). During the 30-year period since a private cause of action was first implied under § 10 (b) and Rule 10b-5,[16]*197 a substantial body of case law and commentary has developed as to its elements. Courts and commentators long have differed with regard to whether scienter is a necessary element of such a cause of action, or whether negligent conduct alone is sufficient.[17] In addressing this question, we turn first to the language of § 10 (b), for "[t]he starting point in every case involving construction of a statute is the language itself." Blue Chip Stamps, supra, at 756 (POWELL, J., concurring); see FTC v. Bunte Bros., Inc., 312 U. S. 349, 350 (1941).
A
Section 10 (b) makes unlawful the use or employment of "any manipulative or deceptive device or contrivance" in contravention of Commission rules. The words "manipulative or deceptive" used in conjunction with "device or contrivance" strongly suggest that § 10 (b) was intended to proscribe knowing or intentional misconduct. See SEC v. Texas Gulf Sulphur Co., 401 F. 2d 833, 868 (CA2 1968) (Friendly, J., concurring), cert. denied sub nom. Coates v. SEC, 394 U. S. 976 (1969); Loss, Summary Remarks, 30 Bus. Law. 163, 165 (Special Issue 1975). See also Kohn v. American Metal Climax, Inc., 458 F. 2d 255, 280 (CA3 1972) (Adams, J., concurring and dissenting).
In its amicus curiae brief, however, the Commission contends that nothing in the language "manipulative or deceptive device or contrivance" limits its operation to *198 knowing or intentional practices.[18] In support of its view, the Commission cites the overall congressional purpose in the 1933 and 1934 Acts to protect investors against false and deceptive practices that might injure them. See Affiliated Ute Citizens v. United States, supra, at 151; Superintendent of Insurance v. Bankers Life & Cas. Co., supra, at 11-12; J. I. Case Co. v. Borak, 377 U. S. 426, 432-433 (1964). See also SEC v. Capital Gains Res. Bur., 375 U. S. 180, 195 (1963). The Commission then reasons that since the "effect" upon investors of given conduct is the same regardless of whether the conduct is negligent or intentional, Congress must have intended to bar all such practices and not just those done knowingly or intentionally. The logic of this effect-oriented approach would impose liability for wholly faultless conduct where such conduct results in harm to investors, a result the Commission would be unlikely to support. But apart from where its logic might *199 lead, the Commission would add a gloss to the operative language of the statute quite different from its commonly accepted meaning. See, e. g., Addison v. Holly Hill Fruit Products, Inc., 322 U. S. 607, 617-618 (1944).[19] The argument simply ignores the use of the words "manipulative," "device," and "contrivance"terms that make unmistakable a congressional intent to proscribe a type of conduct quite different from negligence.[20] Use of the word "manipulative" is especially significant. It is and was virtually a term of art when used in connection with securities markets. It connotes intentional or willful conduct designed to deceive or defraud investors by controlling or artificially affecting the price of securities.[21]
In addition to relying upon the Commission's argument with respect to the operative language of the statute, *200 respondents contend that since we are dealing with "remedial legislation," Tcherepnin v. Knight, 389 U. S. 332, 336 (1967), it must be construed " `not technically and restrictively, but flexibly to effectuate its remedial purposes.' " Affiliated Ute Citizens v. United States, 406 U. S., at 151, quoting SEC v. Capital Gains Research Bureau, supra, at 195. They argue that the "remedial purposes" of the Acts demand a construction of § 10 (b) that embraces negligence as a standard of liability. But in seeking to accomplish its broad remedial goals, Congress did not adopt uniformly a negligence standard even as to express civil remedies. In some circumstances and with respect to certain classes of defendants, Congress did create express liability predicated upon a failure to exercise reasonable care. E. g., 1933 Act § 11 (b) (3) (B), 48 Stat. 82, as amended, 15 U. S. C. § 77k (b) (3) (B) (liability of "experts," such as accountants, for misleading statements in portions of registration statements for which they are responsible).[22] But in other situations good faith is an absolute defense. 1934 Act § 18, 48 Stat. 897, as amended, 15 U. S. C. § 78r (misleading statements in any document filed pursuant to the 1934 Act). And in still other circumstances Congress created express liability regardless of the defendant's fault, 1933 Act § 11 (a), 15 U. S. C. § 77k (a) (issuer liability for misleading statements in the registration statement).
It is thus evident that Congress fashioned standards of fault in the express civil remedies in the 1933 and 1934 Acts on a particularized basis. Ascertainment of congressional intent with respect to the standard of liability created by a particular section of the Acts must therefore rest primarily on the language of that section. Where, as here, we deal with a judicially implied liability, the statutory language certainly *201 is no less important. In view of the language of § 10 (b), which so clearly connotes intentional misconduct, and mindful that the language of a statute controls when sufficiently clear in its context, United States v. Oregon, 366 U. S. 643, 648 (1961); Packard Motor Car Co. v. NLRB, 330 U. S. 485, 492 (1947), further inquiry may be unnecessary. We turn now, nevertheless, to the legislative history of the 1934 Act to ascertain whether there is support for the meaning attributed to § 10 (b) by the Commission and respondents.
B
Although the extensive legislative history of the 1934 Act is bereft of any explicit explanation of Congress' intent, we think the relevant portions of that history support our conclusion that § 10 (b) was addressed to practices that involve some element of scienter and cannot be read to impose liability for negligent conduct alone.
The original version of what would develop into the 1934 Act was contained in identical bills introduced by Senator Fletcher and Representative Rayburn. S. 2693, 73d Cong., 2d Sess. (1934); H. R. 7852, 73d Cong., 2d Sess. (1934). Section 9 (c) of the bills, from which present § 10 (b) evolved, proscribed as unlawful the use of "any device or contrivance which, or any device or contrivance in a way or manner which the Commission may by its rules and regulations find detrimental to the public interest or to the proper protection of investors." The other subsections of proposed § 9 listed specific practices that Congress empowered the Commission to regulate through its rulemaking power. See §§ 9 (a) (short sale), (b) ("stop-loss order"). Soon after the hearings on the House bill were held, a substitute bill was introduced in both Houses which abbreviated and modified *202 § 9 (c)'s operative language to read "any manipulative device or contrivance." H. R. 8720, 73d Cong., 2d Sess., § 9 (c) (1934); see S. 3420, 73d Cong., 2d Sess., § 10 (b) (1934). Still a third bill, retaining the Commission's power to regulate the specific practices enumerated in the prior bills, and omitting all reference to the Commission's authority to prescribe rules concerning manipulative or deceptive devices in general, was introduced and passed in the House. H. R. 9323, 73d Cong., 2d Sess., § 9 (1934). The final language of § 10 is a modified version of a Senate amendment to this last House bill. See H. R. Conf. Rep. No. 1838, 73d Cong., 2d Sess., 32-33 (1934).
Neither the intended scope of § 10 (b) nor the reasons for the changes in its operative language are revealed explicitly in the legislative history of the 1934 Act, which deals primarily with other aspects of the legislation. There is no indication, however, that § 10 (b) was intended to proscribe conduct not involving scienter. The extensive hearings that preceded passage of the 1934 Act touched only briefly on § 10, and most of the discussion was devoted to the enumerated devices that the Commission is empowered to proscribe under § 10 (a). The most relevant exposition of the provision that was to become § 10 (b) was by Thomas G. Corcoran, a spokesman for the drafters. Corcoran indicated:
"Subsection (c) [§ 9 (c) of H. R. 7852later § 10 (b)] says, `Thou shalt not devise any other cunning devices.'
.....
"Of course subsection (c) is a catch-all clause to prevent manipulative devices. I do not think there is any objection to that kind of clause. The Commission should have the authority to deal with new manipulative devices." Hearings on H. R. 7852 *203 and H. R. 8720 before the House Committee on Interstate and Foreign Commerce, 73d Cong., 2d Sess., 115 (1934).
This brief explanation of § 10 (b) by a spokesman for its drafters is significant. The section was described rightly as a "catchall" clause to enable the Commission "to deal with new manipulative [or cunning] devices." It is difficult to believe that any lawyer, legislative draftsman, or legislator would use these words if the intent was to create liability for merely negligent acts or omissions.[23] Neither the legislative history nor the briefs supporting respondents identify any usage or authority for construing "manipulative [or cunning] devices" to include negligence.[24]
*204 The legislative reports do not address the scope of § 10 (b) or its catchall function directly. In considering specific manipulative practices left to Commission regulation, however, the reports indicate that liability would not attach absent scienter, supporting the conclusion that Congress intended no lesser standard under § 10 (b). The Senate Report of S. 3420 discusses generally the various abuses that precipitated the need for the legislation and the inadequacy of self-regulation by the stock exchanges. The Report then analyzes the component provisions of the statute, but does not parse § 10. The only specific reference to § 10 is the following:
"In addition to the discretionary and elastic powers conferred on the administrative authority, effective regulation must include several clear statutory provisions reinforced by penal and civil sanctions, aimed at those manipulative and deceptive practices which have been demonstrated to fulfill no useful *205 function. These sanctions are found in sections 9, 10 and 16." S. Rep. No. 792, 73d Cong., 2d Sess., 6 (1934).
In the portion of the general-analysis section of the Report entitled Manipulative Practices, however, there is a discussion of specific practices that were considered so inimical to the public interest as to require express prohibition, such as "wash" sales and "matched" orders,[25] and of other practices that might in some cases serve legitimate purposes, such as stabilization of security prices and grants of options. Id., at 7-9. These latter practices were left to regulation by the Commission. 1934 Act §§ 9 (a) (6), (c), 48 Stat. 890, 15 U. S. C. §§ 78i (a) (6), (c). Significantly, we think, in the discussion of the need to regulate even the latter category of practices when they are manipulative, there is no indication that any type of criminal or civil liability is to attach in the absence of scienter. Furthermore, in commenting on the express civil liabilities provided in the 1934 Act, the Report explains:
"[I]f an investor has suffered loss by reason of illicit practices, it is equitable that he should be allowed to recover damages from the guilty party. . . . [T]he bill provides that any person who unlawfully *206 manipulates the price of a security, or who induces transactions in a security by means of false or misleading statements, or who makes a false or misleading statement in the report of a corporation, shall be liable in damages to those who have bought or sold the security at prices affected by such violation or statement. In such case the burden is on the plaintiff to show the violation or the fact that the statement was false or misleading, and that he relied thereon to his damage. The defendant may escape liability by showing that the statement was made in good faith." S. Rep. No. 792, supra, at 12-13 (emphasis supplied).
The Report therefore reveals with respect to the specified practices, an overall congressional intent to prevent "manipulative and deceptive practices which . . . fulfill no useful function" and to create private actions for damages stemming from "illicit practices," where the defendant has not acted in good faith. The views expressed in the House Report are consistent with this interpretation. H. R. Rep. No. 1383, 73d Cong., 2d Sess., 10-11, 20-21 (1934) (H. R. 9323). There is no indication that Congress intended anyone to be made liable for such practices unless he acted other than in good faith. The catchall provision of § 10 (b) should be interpreted no more broadly.
C
The 1933 and 1934 Acts constitute interrelated components of the federal regulatory scheme governing transactions in securities. See Blue Chip Stamps, 421 U. S., at 727-730. As the Court indicated in SEC v. National Securities, Inc., 393 U. S. 453, 466 (1969), "the interdependence of the various sections of the securities laws is certainly a relevant factor in any interpretation of the language Congress has chosen . . . ." Recognizing this, *207 respondents and the Commission contrast § 10 (b) with other sections of the Acts to support their contention that civil liability may be imposed upon proof of negligent conduct. We think they misconceive the significance of the other provisions of the Acts.
The Commission argues that Congress has been explicit in requiring willful conduct when that was the standard of fault intended, citing § 9 of the 1934 Act, 48 Stat. 889, 15 U. S. C. § 78i, which generally proscribes manipulation of securities prices. Sections 9 (a) (1) and (a) (2), for example, respectively prohibit manipulation of security prices "[f]or the purpose of creating a false or misleading appearance of active trading in any security . . . or . . . with respect to the market for any such security," and "for the purpose of inducing the purchase or sale of such security by others." See also § 9 (a) (4). Section 9 (e) then imposes upon "[a]ny person who willfully participates in any act or transaction in violation of" other provisions of § 9 civil liability to anyone who purchased or sold a security at a price affected by the manipulative activities. From this the Commission concludes that since § 10 (b) is not by its terms explicitly restricted to willful, knowing, or purposeful conduct, it should not be construed in all cases to require more than negligent action or inaction as a precondition for civil liability.
The structure of the Acts does not support the Commission's argument. In each instance that Congress created express civil liability in favor of purchasers or sellers of securities it clearly specified whether recovery was to be premised on knowing or intentional conduct, negligence, or entirely innocent mistake. See 1933 Act, §§ 11, 12, 15, 48 Stat. 82, 84, as amended, 15 U. S. C. §§ 77k, 77l, 77o; 1934 Act §§ 9, 18, 20, 48 Stat. 889, 897, 899, as amended, 15 U. S. C. §§ 78i, 78r, 78t. For example, § 11 of the 1933 Act unambiguously *208 creates a private action for damages when a registration statement includes untrue statements of material facts or fails to state material facts necessary to make the statements therein not misleading. Within the limits specified by § 11 (e), the issuer of the securities is held absolutely liable for any damages resulting from such misstatement or omission. But experts such as accountants who have prepared portions of the registration statement are accorded a "due diligence" defense. In effect, this is a negligence standard. An expert may avoid civil liability with respect to the portions of the registration statement for which he was responsible by showing that "after reasonable investigation" he had "reasonable ground[s] to believe" that the statements for which he was responsible were true and there was no omission of a material fact.[26] § 11 (b) (3) (B) (i). See, e. g., Escott v. Barchris Constr. Corp., 283 F. Supp. 643, 697-703 (SDNY 1968). The express recognition of a cause of action premised on negligent behavior in § 11 stands in sharp contrast to the language of § 10 (b), and significantly undercuts the Commission's argument.
We also consider it significant that each of the express civil remedies in the 1933 Act allowing recovery for negligent conduct, see §§ 11, 12 (2), 15, 15 U. S. C. §§ 77k, 77l *209 (2), 77o,[27] is subject to significant procedural restrictions not applicable under § 10 (b).[28] Section 11 (e) of the 1933 Act, for example, authorizes the court to require a *210 plaintiff bringing a suit under § 11, § 12 (2), or § 15 thereof to post a bond for costs, including attorney's fees, and in specified circumstances to assess costs at the conclusion of the litigation. Section 13 specifies a statute of limitations of one year from the time the violation was or should have been discovered, in no event to exceed three years from the time of offer or sale, applicable to actions brought under § 11, § 12 (2), or § 15. These restrictions, significantly, were imposed by amendments to the 1933 Act adopted as part of the 1934 Act. Prior to amendment § 11 (e) contained no provision for payment of costs. Act of May 27, 1933, c. 38, § 11 (e), 48 Stat. 83. See Act of June 6, 1934, c. 404, § 206 (e), 48 Stat. 907. The amendments also substantially shortened the statute of limitations provided by § 13. Compare § 13, 48 Stat. 84, with 15 U. S. C. § 77m. See 1934 Act, § 207, 48 Stat. 908. We think these procedural limitations indicate that the judicially created private damages remedy under § 10 (b)which has no comparable restrictions[29]cannot be extended, consistently with the intent of Congress, to actions premised on negligent wrongdoing. Such extension would allow causes of action covered by §§ 11, 12 (2), and 15 to be brought instead under § 10 (b) and thereby nullify the effectiveness of the carefully drawn procedural restrictions on these express actions.[30] See, e. g., Fischman *211 v. Raytheon Mfg. Co., 188 F. 2d 783, 786-787 (CA2 1951); SEC v. Texas Gulf Sulphur Co., 401 F. 2d, at 867-868 (Friendly, J., concurring); Rosenberg v. Globe Aircraft Corp., 80 F. Supp. 123, 124 (ED Pa. 1948); 3 Loss, supra, n. 17, at 1787-1788; R. Jennings & H. Marsh, Securities Regulation 1070-1074 (3d ed. 1972). We would be unwilling to bring about this result absent substantial support in the legislative history, and there is none.[31]
*212 D
We have addressed, to this point, primarily the language and history of § 10 (b). The Commission contends, however, that subsections (b) and (c) of Rule 10b-5 are cast in language whichif standing alone could encompass both intentional and negligent behavior. These subsections respectively provide that it is unlawful "[t]o make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading . . ." and "[t]o engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person . . . ." Viewed in isolation the language of subsection (b), and arguably that of subsection (c), could be read as proscribing, respectively, any type of material misstatement or omission, and any course of conduct, that has the effect of defrauding investors, whether the wrongdoing was intentional or not.
We note first that such a reading cannot be harmonized with the administrative history of the Rule, a history making clear that when the Commission adopted the Rule it was intended to apply only to activities that involved scienter.[32] More importantly, Rule 10b-5 was *213 adopted pursuant to authority granted the Commission under § 10 (b). The rulemaking power granted to an administrative agency charged with the administration of a federal statute is not the power to make law. Rather, *214 it is " `the power to adopt regulations to carry into effect the will of Congress as expressed by the statute.' " Dixon v. United States, 381 U. S. 68, 74 (1965), quoting Manhattan General Equipment Co. v. Commissioner, 297 U. S. 129, 134 (1936). Thus, despite the broad view of the Rule advanced by the Commission in this case, its scope cannot exceed the power granted the Commission by Congress under § 10 (b). For the reasons stated above, we think the Commission's original interpretation of Rule 10b-5 was compelled by the language and history of § 10 (b) and related sections of the Acts. See, e. g., Gerstle v. Gamble-Skogmo, Inc., 478 F. 2d 1281, 1299 (CA2 1973); Lanza v. Drexel & Co., 479 F. 2d 1277, 1304-1305 (CA2 1973); SEC v. Texas Gulf Sulphur Co., 401 F. 2d, at 868 (Friendly, J., concurring); 3 Loss, supra, n. 17, at 1766; 6 id., at 3883-3885. When a statute speaks so specifically in terms of manipulation and deception, and of implementing devices and contrivancesthe commonly understood terminology of intentional wrongdoingand when its history reflects no more expansive intent, we are quite unwilling to extend the scope of the statute to negligent conduct.[33]
*215 III
Recognizing that § 10 (b) and Rule 10b-5 might be held to require proof of more than negligent nonfeasance by Ernst & Ernst as a precondition to the imposition of civil liability, respondents further contend that the case should be remanded for trial under whatever standard is adopted. Throughout the lengthy history of this case respondents have proceeded on a theory of liability premised on negligence, specifically disclaiming that Ernst & Ernst had engaged in fraud or intentional misconduct.[34] In these circumstances, we think it inappropriate to remand the action for further proceedings.
The judgment of the Court of Appeals is
Reversed.
MR. JUSTICE STEVENS took no part in the consideration or decision of this case.
MR. JUSTICE BLACKMUN, with whom MR. JUSTICE BRENNAN joins, dissenting.
Once againsee Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723, 730 (1975)the Court interprets *216 § 10 (b) of the Securities Exchange Act of 1934, 15 U. S. C. § 78j (b), and the Securities and Exchange Commission's Rule 10b-5, 17 CFR § 240.10b-5 (1975), restrictively and narrowly and thereby stultifies recovery for the victim. This time the Court does so by confining the statute and the Rule to situations where the defendant has "scienter," that is, the "intent to deceive, manipulate, or defraud." Sheer negligence, the Court says, is not within the reach of the statute and the Rule, and was not contemplated when the great reforms of 1933, 1934, and 1942 were effectuated by Congress and the Commission.
Perhaps the Court is right, but I doubt it. The Government and the Commission doubt it too, as is evidenced by the thrust of the brief filed by the Solicitor General on behalf of the Commission as amicus curiae. The Court's opinion, to be sure, has a certain technical consistency about it. It seems to me, however, that an investor can be victimized just as much by negligent conduct as by positive deception, and that it is not logical to drive a wedge between the two, saying that Congress clearly intended the one but certainly not the other.
No one questions the fact that the respondents here were the victims of an intentional securities fraud practiced by Leston B. Nay. What is at issue, of course, is the petitioner accountant firm's involvement and that firm's responsibility under Rule 10b-5. The language of the Rule, making it unlawful for any person "in connection with the purchase or sale of any security"
"(b) To make any untrue statement of a material *217 fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
"(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,"
seems to me, clearly and succinctly, to prohibit negligent as well as intentional conduct of the kind proscribed, to extend beyond common-law fraud, and to apply to negligent omission and commission. This is consistent with Congress' intent, repeatedly recognized by the Court, that securities legislation enacted for the purpose of avoiding frauds be construed "not technically and restrictively, but flexibly to effectuate its remedial purposes." SEC v. Capital Gains Research Bureau, 375 U. S. 180, 195 (1963); Superintendent of Insurance v. Bankers Life & Cas. Co., 404 U. S. 6, 12 (1971); Affiliated Ute Citizens v. United States, 406 U. S. 128, 151 (1972).
On motion for summary judgment, therefore, the respondents' allegations, in my view, were sufficient, and the District Court's dismissal of the action was improper to the extent that the dismissal rested on the proposition that suit could not be maintained under § 10 (b) and Rule 10b-5 for mere negligence. The opposite appears to be true, at least in the Second Circuit, with respect to suits by the SEC to enjoin a violation of the Rule. SEC v. Management Dynamics, Inc., 515 F. 2d 801 (1975); SEC v. Spectrum Ltd., 489 F. 2d 535, 541 (1973); SEC v. Texas Gulf Sulphur Co., 401 F. 2d 833, 854-855 (1968), cert. denied sub nom. Coates v. SEC, 394 U. S. 976 (1969). I see no real distinction between that situation and this one, for surely the question whether negligent conduct violates the Rule should not depend upon the plaintiff's identity. If negligence is a violation factor *218 when the SEC sues, it must be a violation factor when a private party sues. And, in its present posture, this case is concerned with the issue of violation, not with the secondary issue of a private party's judicially created entitlement to damages or other specific relief. See Rondeau v. Mosinee Paper Corp., 422 U. S. 49 (1975).
The critical importance of the auditing accountant's role in insuring full disclosure cannot be overestimated. The SEC has emphasized that in certifying statements the accountant's duty "is to safeguard the public interest, not that of his client." In re Touche, Niven, Bailey & Smart, 37 S. E. C. 629, 670-671 (1957). "In our complex society the accountant's certificate and the lawyer's opinion can be instruments for inflicting pecuniary loss more potent than the chisel or the crowbar." United States v. Benjamin, 328 F. 2d 854, 863 (CA2), cert. denied sub nom. Howard v. United States, 377 U. S. 953 (1964). In this light, the initial inquiry into whether Ernst & Ernst's preparation and certification of the financial statements of First Securities Company of Chicago were negligent, because of the failure to perceive Nay's extraordinary mail rule, and in other alleged respects, and thus whether Rule 10b-5 was violated, should not be thwarted.
But the Court today decides that it is to be thwarted, and so once again it rests with Congress to rephrase and to re-enact, if investor victims, such as these, are ever to have relief under the federal securities laws that I thought had been enacted for their broad, needed, and deserving benefit.[*]
NOTES
[*] Kenneth J. Bialkin and Louis A. Craco filed a brief for the American Institute of Certified Public Accountants as amicus curiae urging reversal.
[1] Section 17 (a) requires that securities brokers or dealers "make . . . and preserve . . . such accounts . . . books, and other records, and make such reports, as the Commission by its rules and regulations may prescribe as necessary or appropriate in the public interest or for the protection of investors." During the period relevant here, Commission Rule 17a-5, 17 CFR § 240. 17a-5 (1975), required that First Securities file an annual report of its financial condition that included a certificate stati