U.S. Securities & Exchange Commission v. Bocchino (In Re Bocchino)
794 F.3d 376
3rd Cir.2015Background
- Bocchino, an experienced stockbroker, solicited sales of two 1996 private placements (Traderz and Fargo) without conducting independent due diligence; he earned commissions (~$54,000 total).
- Both offerings were fraudulent; principals were criminally convicted and the investments became worthless.
- The SEC obtained default civil judgments against Bocchino in two Southern District of New York actions totaling $178,967.55 (disgorgement, interest, penalties).
- Bocchino filed Chapter 13; the SEC sought a Bankruptcy Court declaration that the civil judgment amounts (except civil penalties discharged under §1328) were nondischargeable under 11 U.S.C. §523(a)(2)(A).
- Bankruptcy Court found Bocchino did not knowingly lie but held his conduct was “grossly reckless,” satisfying §523(a)(2)(A); District Court affirmed. Bocchino appealed seeking reversal on scienter and proximate-cause grounds.
Issues
| Issue | Plaintiff's Argument (SEC) | Defendant's Argument (Bocchino) | Held |
|---|---|---|---|
| Whether §523(a)(2)(A) scienter can be satisfied by gross recklessness | Gross recklessness satisfies the statute; intent may be inferred from reckless conduct | §523(a)(2)(A) requires actual intent to defraud; reckless conduct is insufficient | Court held gross recklessness meets §523(a)(2)(A) scienter requirement |
| Whether Bocchino’s conduct was the proximate cause of clients’ losses | Bocchino’s reckless misrepresentations were a substantial and foreseeable cause of losses; principals’ crimes were not superseding causes | Argued intervening criminal acts of principals broke causal chain | Court held proximate cause established; principals’ conduct not a superseding, unforeseeable cause |
Key Cases Cited
- Grogan v. Garner, 498 U.S. 279 (1991) (creditor must prove nondischargeability by a preponderance; exceptions construed narrowly)
- Bullock v. BankChampaign, N.A., 133 S. Ct. 1754 (2013) (gross recklessness can satisfy scienter for defalcation under §523(a)(4))
- In re Cohen, 106 F.3d 52 (3d Cir. 1997) (court approved formulation allowing recklessness as basis for fraud under §523(a)(2)(A))
- In re Cohn, 54 F.3d 1108 (3d Cir. 1995) (intent to deceive may be proven by reckless indifference under §523(a)(2)(B))
- In re Rembert, 141 F.3d 277 (6th Cir. 1998) (gross recklessness satisfies scienter for §523(a)(2)(A))
- McLean v. Alexander, 599 F.2d 1190 (3d Cir. 1979) (reckless disregard can establish scienter for securities fraud)