DECISION DENYING DEFENDANT’S MOTION TO DISMISS. DISCHARGE-ABILITY COMPLAINT
This is a suit against an investment adviser for fraudulently inducing the plaintiffs to invest in risky options and seeking to hold the claims nondischargeable under 11 U.S.C. §§ 523(a)(2)(A) and 523(a)(4). The defendant seeks to dismiss the plaintiffs’ amended complaint for failure to state a claim upon which relief can be granted. The court has sua sponte reconsidered its prior oral ruling and decides in this decision to deny the defen *250 dant’s motion to dismiss the plaintiffs’ amended complaint.
I. INTRODUCTION
By their amended complaint, the plaintiffs, Harvey Jacobs and Jerome Shapiro (“plaintiff’), trustees under the trust (“the Trust”) established by the will of Gilbert Shapiro, seek a judgment fixing damages against the debtor, Bruce E. Mones, and declaring the judgment to be nondisehargeable pursuant to 11 U.S.C. §§ 523(a)(2)(A) and 523(a)(4).
Plaintiffs assert five counts against the defendant. Count I alleges securities fraud in violation of 15 U.S.C. § 78j(b) (Section 10(b) of the Securities Act of 1934) and 12 C.F.R. § 240.10b-5 (Rule 10b-5). Count II alleges violations of the District of Columbia’s securities laws, D.C.Code Ann. § 2-2613. Damages sought for Counts I and II total $184,785.25 plus interest. Count III is a common law fraud action. Count IV alleges breach of fiduciary duty. Damages sought for Counts III and IV total $877,-024.49.
II. FACTUAL BACKGROUND
For purposes of a motion to dismiss, the allegations of a complaint must be accepted as true. The amended complaint alleges the following.
Mones, an investment adviser registered with the Securities and Exchange Commission, was hired by the Trust sometime prior to November of 1986. As an adviser, defendant invested the Trust’s funds in stocks traded on the New York Stock Exchange (“the Exchange”), utilizing an investment strategy that was relatively conservative and resulted in moderate but steady gains. In May of 1987, Mones suggested that the Trust invest in his “option income program” (“option program”) which Mones described as very safe and relatively risk-free. Unlike the prior investments which generated a 1% commission for Mones, he received an annual commission of 2% of the portfolio value for managing an option program account. Relying on Mones’ representations, the Trust invested in excess of $757,000 in the option program.
Upon Mones’ suggestion, on July 15, 1987 the Trust opened a securities account with Tucker, Anthony, & R.L. Day, Inc. (“Tucker”), a broker-dealer of securities. At this time, Mones was granted a power of attorney to buy and sell securities on the Trust’s behalf. As of September 30, 1987, the Trust’s account at Tucker had a balance of $709,617. In mid-October of 1987, the value of the securities on the Exchange dropped precipitously, causing large losses in the account. As of October 31, 1987, the account with Tucker had a debit balance of $167,-407.49.
Mones misrepresented and omitted material facts concerning the risk involved in investing in the option program. Mones was well aware of the true risks associated with trading options but purposely misled the Trust in order to generate greater commissions for his personal benefit. As a result of these untrue and misleading representations and omissions, the Trust suffered a loss in excess of $877,024.49. Additional facts alleged by the amended complaint are discussed below.
III.EXCEPTIONS TO DISCHARGE
Plaintiffs allege that any judgment awarded pursuant to Counts I, II and/or III is-nondisehargeable pursuant to 11 U.S.C. § 523(a)(2)(A) on the basis that the debtor fraudulently misrepresented the nature and risk of the option program. Plaintiffs additionally allege that a debt founded upon Count IV is excepted from discharge pursuant to § 532(a)(4) as such debt was incurred by defendant’s fraud or defalcation while acting in a fiduciary capacity.
A. Section 523(a)(2)(A) Exception to Discharge
Plaintiffs claim that the debtor obtained money by false representations or actual fraud in violation in 11 U.S.C. § 523(a)(2)(A) by falsely representing that the option program was a relatively conservative investment that was free of significant risk of loss. In addition, plaintiffs allege that the defendant fraudulently failed to disclose that (1) the program was risky; (2) losses could mount the longer it took to exit a losing *251 position; (3) a falling market could lead to huge losses; and (4) the trust could lose funds in excess of the amount in its account. 1
1. Interpretation of the Term “Obtaining Money”
As a preliminary matter, the court must consider whether the debt sought to be held nondischargeable is a debt for “obtaining money.” 2 Defendant contends that even if the court assumes that fraud was involved, the only money “obtained” by the defendant was his commissions and, therefore, any exception to discharge pursuant to § 523(a)(2)(A) must be limited to that amount.
Courts disagree whether a debtor himself must actually receive the money that he has obtained by fraud before nondischargeability can apply. Three different views have emerged.
In re Wade,
Although this court initially indicated its agreement with the first view in its earlier oral decision, after closer analysis, the court finds its earlier view to be incorrect and rejects the first view. Requiring that the debtor obtain money for himself limits the meaning of the term “obtain” when no such limitation is expressly or implicitly found in the provision’s language.
See In re Winfree,
With respect to the second view, several courts have noted that “the better view appears to be that the debtor need not actually procure money or property for himself. If the debtor benefits in some way from the property obtained through his deception, the debt is nondischargeable.”
In re Holwerda,
Only
Wade,
Because a benefit was conferred on the debtor here, it is unnecessary to decide whether Wade and Ward were correctly decided. But I must at least respectfully question the three grounds set forth in Wade and Ward for rejecting the third view.
First, Congress was not confronted with a longstanding receipt of benefits theory. As the Supreme Court held in
United States v. Ron Pair Enterprises, Inc.,
Second, the requirement of narrow construction of discharge, exceptions announced in
Gleason v. Thaw,
Third, if the third view is followed, the Code’s use of the word “obtaining” (in the pre-1984 version of § 523(a)(2)) would not, as Wade contends, have been superfluous. If the word “obtaining” were deleted, the statute would have applied to a debt “(2) for money ... by” enumerated species of fraud, an unintelligible articulation. The word “obtaining” is only half the story: it is paired with the word “by.” The term “obtaining by” is used to limit nondischargeable debts for money to instances in which the money was obtained by some species of fraud, as opposed to those when the money was obtained by honest means. The statute is completely neutral as to the question of for whose benefit the debtor obtained the money.
Had Congress intended § 523(a)(2)(A) to be limited to money obtained for the debtor or for his benefit, it knew how to do so. In § 14(c)(3) of the Bankruptcy Act Congress denied discharges to a bankrupt if the bankrupt, inter alia, “while engaged in business as a sole proprietor, partnership, or as an executive of a *253 corporation, obtained such business money or property or credit ... by making ... a materially false statement in writing respecting his financial condition or the financial condition of such partnership or corporation.” (Emphasis added.) Congress’s failure similarly to limit the word “obtaining” or “obtained” in either § 17(a)(2) of the Bankruptcy Act or either the pre-1984 or post-1984 versions of § 523(a)(2)(A) thus demonstrates a lack of any restriction of nondischargeable debts to those for money obtained for the debtor or for his benefit.
As the court in
In re Scheuer,
Section 523(a)(2) does not limit itself to money or property in which title transfers to the debtor. Rather, it provides that a debt for money, etc., is nondischargeable “to the extent obtained by” debtor’s bad acts as listed in the provision.
There is “nothing in § 523(a)(2) or its legislative history that precludes its application to the situation where a broker receives funds from its principal by misrepresenting the investment, and the principal loses the investment.”
Scheuer,
The court in Scheuer found it unnecessary to decide whether the third view controls, as does this court, because a benefit is present.
2. Application of the Term “Obtaining Money” to the Facts of this Case
Applying the foregoing discussion to the facts of this case, I first note, without deciding the issue, that it is arguable that the debtor in this case obtained the funds even under the first view. The debtor is alleged to have fraudulently advised the plaintiffs to invest funds in the defendant’s option program. Although title to the invested funds remained with the Trust, the debtor had complete control over those funds via a power of attorney and this control was gained by the debtor’s alleged fraudulent misrepresentations. Therefore, that the funds were placed in an account at an independent brokerage house rather than in the debtor’s own trading account is of no consequence to the provision’s applicability. He obtained the funds by placing them in an account over which he had control. Thus, even under the first view he arguably obtained the funds.
Furthermore, the debtor clearly obtained the funds under the second view because he can be said to have benefitted from the money that he fraudulently obtained control of.
See, e.g., Scheuer,
125 B.R..at 588 (broker benefitted from money he fraudulently induced client to invest in trading program);
In re Ashley,
As one court has held, “[f]inan-cial benefit to the debtor is a
sufficient
condition to finding that the debtor ‘obtained money’ under section 523(a)(2).”
Winfree,
Accordingly, the defendant’s request that the plaintiffs’ complaint be limited to the amount of the commissions will be denied.
3. Whether Alleged Securities Law Fraud in Counts I and II Suffices to Establish Fraud Under § 523(a)(2)(A)
In addition to the defendant’s argument that section 523(a)(2)(A) is limited to the amount of any commissions, the defendant contends that any judgment awarded pursuant to Counts I and II for violations of federal and state securities laws fails to give rise to a debt that may be held nondischargeable pursuant to section 523(a)(2). Defendant argues that because fraud as defined in the securities laws is broader than fraud in the Bankruptcy Code, 6 which the plaintiffs have conceded, as a matter of law such violations are insufficient to constitute an exception to discharge.
Defendant’s argument, however, is flawed because it assumes that a person who violates the securities laws never does so by committing actual fraud. It is certainly possible to envision a violator of the securities laws who does so with actual intent to deceive.
See, e.g., In re Der,
Plaintiffs have sufficiently alleged facts to support a claim for nondis-chargeability pursuant to section 523(a)(2)(A). To find a debt nondischargeable, the following elements must be established by a preponderance of the evidence: (1) a representation of fact by the debtor; (2) that was material; (3) that the debtor knew at the time to be false; (4) made with the intention of deceiving the creditor; (5) upon which the plaintiff relied; and (6) that resulted in loss or damage as the proximate consequences of the representation.
See In re Pascucci,
Defendant is alleged to have made misrepresentations concerning the nature of the option program and its attendant risk. And because the defendant acted as an investment adviser, such representations cannot be deemed to constitute mere puffery.
See Ashley,
Based on the discussion above, a judgment awarded pursuant to Counts I, II and/or III could plausibly be held nondischargeable pursuant to section 523(a)(2)(A). Accordingly, plaintiffs’ complaint with respect to this provision will not be dismissed.
B. Section 523(a)(4) Exception to Discharge
Plaintiffs additionally allege that the debtor violated another provision specifically exempting a debt from discharge, section 523(a)(4), which provides for nondischarge-ability of a debt “for fraud or defalcation while acting in a fiduciary capacity.” Plaintiffs must prove that (1) the defendant was obligated to the plaintiff in a fiduciary capacity; (2) the defendant committed fraud or defalcation while acting in his fiduciary capacity; and (3) the plaintiffs debt resulted from such fraud or defalcation.
In re Stone,
For purposes of section 523(a)(4), the meaning of the term “fiduciary capacity” is a question of federal law which has held that the term applies only to technical trusts, express trusts, or statutorily imposed trusts and not to fiduciary relationships which arise from equitable, implied or constructive trusts or an agency relationship.
In re Piercy,
However, the courts must look to non-bankruptcy law to determine whether there exist the elements of a trust relationship as required by federal law for a fiduciary relationship to exist. Plaintiffs assert two grounds for finding that the defendant acted in a fiduciary capacity as contemplated in section 523(a)(4): (1) he was acting as an investment adviser under the Investment Adviser Act of 1940 (the “Act”); and (2) he was acting pursuant to a power of attorney authorizing him to make purchases and sales on behalf of his client.
1. Investment Adviser Act of 1940
With respect to plaintiffs’ first basis for finding a fiduciary capacity, a statute creating trust duties may create a fiduciary relationship as to transactions entered into that are governed by the statute.
In re Carey Lumber Co. v. Bell,
After a careful examination of section 80b-6 of the Act
7
and certain rules and regulations promulgated thereunder, as enumerated in 17 C.F.R. § 275.204-2, -3, and 206(4)-2, the court in
In re Peterson,
This court finds the reasoning in Peterson persuasive and finding no authority to the contrary holds that the Investment Advisers Act gives rise to a trust that imposes a fiduciary capacity as contemplated by section 523(a)(4). 9 Therefore, the court must consider whether the plaintiffs have sufficiently alleged facts showing fraud or, alternatively, defalcation with respect to the obligations imposed on the defendant as a result of his capacity as investment adviser. 10
Arguably no defalcation can be found on the face of plaintiffs’ complaint and I assume that is the case without finally deciding the issue for purposes of trial. There are no allegations that the defendant misappropriated the funds belonging to the Trust or traded the funds in an unauthorized fashion.
See In re Smith,
However, the question of fraud is different. As an investment adviser, the defendant owed certain statutorily imposed duties with respect to the investment advice provided. Plaintiffs allege that the defendant, motivated by his own self interest, fraudulently advised plaintiffs to invest the funds in the option program, knowing it was not the type of investment suitable to the Trust’s needs. Providing such fraudulent advice regarding investments would constitute a breach of the obligations imposed by the Act and, therefore, plaintiffs’ allegations are plainly sufficient to state a claim for fraud while acting in a fiduciary capacity.
See Peterson,
*257 2. Power of Attorney
Plaintiffs assert that the power of attorney granted to the defendant imposes the type of fiduciary capacity that is required by this provision.
The defendant argues, first, that even if the court assumes that the power of attorney imposes the type of trust relationship as required by the provision, plaintiffs’ allegations with respect to the power of attorney fail to provide a basis for nondischargeability pursuant to section 523(a)(4). As mentioned above, the trust must have been in existence before the alleged wrongful acts occurred. However, the misrepresentations by the defendant occurred prior to entering into the power of attorney. The defendant urges that plaintiffs do not contend that the defendant committed any acts of defalcation after the power of attorney was granted or acted fraudulently in exercising the power of attorney. Rather, they allege that defendant’s representations induced them to invest in the options program, which also resulted in granting the defendant a power of attorney.
The court must reject the defendant’s first argument. A trustee who obtains a beneficiary’s acquiescence to a risky investment based on a misrepresentation enjoys no immunity from damages merely because the misrepresentation pre-dated the trust relationship. The wrong, while acting in a fiduciary relationship, is the making of the investment with knowledge that the beneficiary has been previously misled as to the investment’s safety.
The defendant argues, second, that there is no allegation that the defendant did anything other than what the power of attorney permitted. But a power of attorney may impose a fiduciary relationship.
In re Barwick,
The court recognizes that the question is not free from doubt and will welcome at trial additional briefs on the question of what state law applies and whether that law creates a fiduciary relationship in the case of a power of attorney. The answer may be that no true § 523(a)(4) fiduciary relationship exists. Or, if one exists, the duty in the fiduciary relationship may be limited to carrying out the beneficiary’s instructions, with any duty to disclose that the beneficiary has been given false information in reaching the decision to make the instruction originating in other law than that governing the fiduciary relationship. 11 But these are all questions that ought to be fleshed out at trial on a full factual record regarding the power of attorney and the relationship that evolved around it. The court already has to try the question of fraud under § 523(a)(2)(A) and it will not substantially alter the trial to keep the power of attorney issue alive.
Accordingly, plaintiffs’ § 523(a)(4) claims based on allegations that the defendant acted fraudulently while acting as an investment adviser under the Act and while acting under a power of attorney will not be dismissed.
Notes
. 11 U.S.C. § 523(a)(2)(A) provides, in pertinent part:
A discharge does not discharge an individual debtor from any debt—
(2) for money, property, or services, ..., to the extent obtained by—
(A) false pretenses, a false representation, or actual fraud ...
. The statute’s language provides that a debt for "money, property, or services ..., to the extent obtained by ..." fraud is nondischargeable. Although this language appears to be somewhat ambiguous, the relevance of the term "obtained” becomes apparent upon examining the earlier versions of this provision. Under section 17a(2) of the Bankruptcy Act which excepted from discharge "liabilities for obtaining money or property by false pretenses ...", the term "obtaining” clearly qualified the phrase property such that if the debtor obtained property by fraud, the debt arising from such fraud was nondischargeable. When Congress enacted the Bankruptcy Code, section 523(a)(2) provided for nondischargeability of a debt “for obtaining money ... by” fraud. This provision was amended in 1984 by § 454(a)(1) of the Bankruptcy Amendment Act to the current version. Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353, 98 Stat. 333. However, this amendment was purely technical in nature and was not intended to change the previous interpretations of the provision. Thus, it is clear to this court that the phrase "obtained" in the statute’s current version still qualifies "money, property or services.”
.In
Cohen,
the facts tire similar to this case. The plaintiff sued her financial consultant for commissions paid and option trading losses she suffered as a result of defendant's fraudulent advice. The court held that only a debt equal to the amount of the commissions was nondis-chargeable because "the debtor
himself
must 'obtain' money by fraud.”
Cohen,
. Nevertheless, the presence of an economic benefit is obviously of relevance in determining whether the debtor acted with an intent to deceive. But motivations besides economic benefit may form the basis of an intent to deceive. The absence of an economic benefit, therefore, is not definitive in negating an intent to deceive and is irrelevant for purposes of a motion to dismiss for failure to state a claim upon which relief can be granted.
. In Scheuer, plaintiff sought to have determined nondischargeable a judgment obtained against the debtor who was the principal in a brokerage firm that has acted as plaintiff’s investment adviser. Upon finding that the debtor “obtained the money” in that he encouraged the investments, that the debtor received a benefit in the form of commissions and that the elements of section 523(a)(2)(A) had been established, the court held that the entire judgment, which had been awarded for the brokerage firm’s violations of the Commodity Exchange Act, breaches of fiduciary duty, common law fraud, and RICO violations, was nondischargeable except with respect to the amount of punitive damages.
. For a debt to be nondischargeable under section 523(a)(2), the debtor’s conduct must involve moral turpitude or intentional wrong; mere negligence, poor business judgment or fraud implied in law is insufficient. However, the securities laws can be violated upon the showing of scien-ter which may not rise to the level of actual fraud.
. Section 80b-6 provides in pertinent part:
It shall be unlawful for any investment adviser ... to directly or indirectly'—
(1) employ any device, scheme, or artifice to defraud any client or prospective client;
(2) to engage in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client; (4) to engage in any act, practice, or course of business which is fraudulent, deceptive, or manipulative ....
. The court in
Peterson
also noted that there is a revocable license requirement.
See
15 U.S.C. § 8 Ob-3 (e). But it did so only because this was perceived to be critical in
In re Romero,
. The Supreme Court has held that there is no private cause of action for damages under section 8 Ob-6 of the Act and that only a limited private remedy to void the investment adviser's contract exists under section 80b-15.
Trans-america Mortgage Advisors v. Lewis,
.The fraud or defalcation must be a breach of a fiduciary duty shown to satisfy the requirements of § 523(a)(4).
See, e.g., Stone,
. See footnote 10, supra.