U.S. Securities and Exchange Commission v. Bocchino (In re Bocchino)

Civil No. 14-4299 (3d Cir. July 23, 2015) (Precedential)
The scienter requirement of Section 523(a)(2)(A) may be satisfied by grossly reckless behavior. Proof of actual intent to defraud is not required.
Procedural context:
On appeal from the United States District Court for the Middle District of Pennsylvania
The debtor, Bocchino, worked as a stockbroker, earning commissions on the investments he obtained. In 1996, he twice solicited private placement investments in stocks for which he had not done any independent investigation of the quality of the investments. He solicited investments in one company based upon a superior's statement that the company "might go public" and that a popular fashion model made "some commitment" to the company. He solicited investments in the second company despite his knowledge that the full time job of that company's principal was as a law student. Both companies were fraudulent ventures, and the principals of each were criminally convicted. The Securities Exchange Commission (SEC) commenced suit against those who sold investments in the entities, including Bocchino. Civil judgments were entered against Bocchino totalling $179,000, including disgorgement, prejudgment interest and civil penalties. Bocchino filed a Chapter 13 bankruptcy petition. The SEC sought a determination that the judgments were non-dischargeable. The bankruptcy court ordered the civil penalties discharged, but declared the balance to be non-dischargeable. Bocchino appealed, challenging the bankruptcy court's determination that (1) the scienter requirement of Section 523(a)(2)(A) may be satisfied by a showing of gross recklessness, and (2) his actions were the proximate cause of his clients' losses. The District Court affirmed in all respects.
Chagares, Krause, and Van Antwerpen (author)

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