HERMAN & MacLEAN, Petitioner, v. Ralph E. HUDDLESTON et al. Ralph E. HUDDLESTON et al., Petitioner, v. HERMAN & MacLEAN.

These consolidated cases raise two unresolved questions concerning Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b). The first is whether purchasers of registered securities who allege they were defrauded by misrepresentations in a registration statement may maintain an action under Section 10(b) notwithstanding the express remedy for misstatements and omissions in registration statements provided by Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k. The second question is whether persons seeking recovery under Section 10(b) must prove their cause of action by clear and convincing evidence rather than by a preponderance of the evidence.

* In 1969 Texas International Speedway, Inc. ("TIS"), filed a registration statement and prospectus with the Securities and Exchange Commission offering a total of $4,398,900 in securities to the public. The proceeds of the sale were to be used to finance the construction of an automobile speedway. The entire issue was sold on the offering date, October 30, 1969. TIS did not meet with success, however, and the corporation filed a petition for bankruptcy on November 30, 1970.

In 1972 plaintiffs Huddleston and Bradley instituted a class action in the United States District Court for the Southern District of Texas1 on behalf of themselves and other purchasers of TIS securities. The complaint alleged violations of Section 10(b) of the Securities Exchange Act of 1934 ("the 1934 Act") and SEC Rule 10b-5 promulgated thereunder, 17 CFR 240.10b-5.2 Plaintiffs sued most of the participants in the offering, including the accounting firm, Herman & MacLean, which had issued an opinion concerning certain financial statements and a pro forma balance sheet3 that were contained in the registration statement and prospectus. Plaintiffs claimed that the defendants had engaged in a fraudulent scheme to misrepresent or conceal material facts regarding the financial condition of TIS, including the costs incurred in building the speedway.

After a three-week trial, the District Judge submitted the case to the jury on special interrogatories relating to liability. The judge instructed the jury that liability could be found only if the defendants acted with scienter.4 The judge also instructed the jury to determine whether plaintiffs had proven their cause of action by a preponderance of the evidence. After the jury rendered a verdict in favor of the plaintiffs on the submitted issues, the judge concluded that Herman & MacLean and others had violated Section 10(b) and Rule 10b-5 by making fraudulent misrepresentations in the TIS registration statement.5 The court then determined the amount of damages and entered judgment for the plaintiffs.

On appeal, the United States Court of Appeals for the Fifth Circuit held that a cause of action may be maintained under Section 10(b) of the 1934 Act for fraudulent misrepresentations and omissions even when that conduct might also be actionable under Section 11 of the Securities Act of 1933 ("the 1933 Act"). Huddleston v. Herman & MacLean, 640 F.2d 534, 540-543 (1981). However, the Court of Appeals disagreed with the District Court as to the appropriate standard of proof for an action under Section 10(b), concluding that a plaintiff must prove his case by "clear and convincing" evidence. Id., at 545-546. The Court of Appeals reversed the District Court's judgment on other grounds and remanded the case for a new trial. Id., at 547-550, 560.

We granted certiorari to consider whether an implied cause of action under Section 10(b) of the 1934 Act will lie for conduct subject to an express civil remedy under the 1933 Act, an issue we have previously reserved,6 and to decide the standard of proof applicable to actions under Section 10(b).7 --- U.S. ----, 102 S.Ct. 1766, 72 L.Ed.2d 173 (1982). We now affirm the court of appeals' holding that plaintiffs could maintain an action under Section 10(b) of the 1934 Act, but we reverse as to the applicable standard of proof.

The Securities Act of 1933 and the Securities Exchange Act of 1934 "constitute interrelated components of the federal regulatory scheme governing transactions in securities." Ernst & Ernst v. Hochfelder, 425 U.S. 185, 206, 96 S.Ct. 1375, 1387, 47 L.Ed.2d 668 (1976). The Acts created several express private rights of action,8 one of which is contained in Section 11 of the 1933 Act. In addition to the private actions created explicitly by the 1933 and 1934 Acts, federal courts have implied private remedies under other provisions of the two laws.9 Most significantly for present purposes, a private right of action under Section 10(b) of the 1934 Act and Rule 10b-5 has been consistently recognized for more than 35 years.10 The existence of this implied remedy is simply beyond peradventure.

The issue in this case is whether a party should be barred from invoking this established remedy for fraud because the allegedly fraudulent conduct would apparently also provide the basis for a damage action under Section 11 of the 1933 Act.11 The resolution of this issue turns on the fact that the two provisions involve distinct causes of action and were intended to address different types of wrongdoing.

Section 11 of the 1933 Act allows purchasers of a registered security to sue certain enumerated parties in a registered offering when false or misleading information is included in a registration statement. The section was designed to assure compliance with the disclosure provisions of the Act by imposing a stringent standard of liability12 on the parties who play a direct role in a registered offering.13 If a plaintiff purchased a security issued pursuant to a registration statement, he need only show a material misstatement or omission to establish his prima facie case. Liability against the issuer of a security is virtually absolute,14 even for innocent misstatements. Other defendants bear the burden of demonstrating due diligence. See 15 U.S.C. § 77k(b).

Although limited in scope, Section 11 places a relatively minimal burden on a plaintiff. In contrast, Section 10(b) is a "catchall" antifraud provision,15 but it requires a plaintiff to carry a heavier burden to establish a cause of action. While a Section 11 action must be brought by a purchaser of a registered security, must be based on misstatements or omissions in a registration statement, and can only be brought against certain parties, a Section 10(b) action can be brought by a purchaser or seller of "any security" against "any person" who has used "any manipulative or deceptive device or contrivance" in connection with the purchase or sale of a security. 15 U.S.C. § 78j (emphasis added). However, a Section 10(b) plaintiff carries a heavier burden than a Section 11 plaintiff. Most significantly, he must prove that the defendant acted with scienter, i.e., with intent to deceive, manipulate, or defraud.16

Since Section 11 and Section 10(b) address different types of wrongdoing, we see no reason to carve out an exception to Section 10(b) for fraud occurring in a registration statement just because the same conduct may also be actionable under Section 11.17 Exempting such conduct from liability under Section 10(b) would conflict with the basic purpose of the 1933 Act: to provide greater protection to purchasers of registered securities. It would be anomalous indeed if the special protection afforded to purchasers in a registered offering by the 1933 Act were deemed to deprive such purchasers of the protections against manipulation and deception that Section 10(b) makes available to all persons who deal in securities.

While some conduct actionable under Section 11 may also be actionable under Section 10(b), it is hardly a novel proposition that the Securities Exchange Act and the Securities Act "prohibit some of the same conduct." United States v. Naftalin, 441 U.S. 768, 778, 99 S.Ct. 2077, 2084, 60 L.Ed.2d 624 (1979) (applying Section 17(a) of the 1933 Act to conduct also prohibited by Section 10(b) of the 1934 Act in an action by the SEC). " 'The fact that there may well be some overlap is neither unusual nor unfortunate.' " Ibid., quoting SEC v. National Securities, Inc., 393 U.S. 453, 468, 89 S.Ct. 564, 572, 21 L.Ed.2d 668 (1969). In savings clauses included in the 1933 and 1934 Acts, Congress rejected the notion that the express remedies of the securities laws would preempt all other rights of action. Section 16 of the 1933 Act states unequivocally that "[t]he rights and remedies provided by this subchapter shall be in addition to any and all other rights and remedies that may exist at law or in equity." 15 U.S.C. § 77p. Section 28(a) of the 1934 Act contains a parallel provision. 15 U.S.C. § 78bb(a). These provisions confirm that the remedies in each Act were to be supplemented by "any and all" additional remedies.

This conclusion is reinforced by our reasoning in Ernst & Ernst v. Hochfelder, supra, which held that actions under Section 10(b) require proof of scienter and do not encompass negligent conduct. In so holding, we noted that each of the express civil remedies in the 1933 Act allowing recovery for negligent conduct is subject to procedural restrictions not applicable to a Section 10(b) action.18 425 U.S., at 208-210, 96 S.Ct., at 1388-89. We emphasized that extension of Section 10(b) to negligent conduct would have allowed causes of action for negligence under the express remedies to be brought instead under Section 10(b), "thereby nullify[ing] the effectiveness of the carefully drawn procedural restrictions on these express actions." Id., at 210, 96 S.Ct., at 1389 (footnote omitted). In reasoning that scienter should be required in Section 10(b) actions in order to avoid circumvention of the procedural restrictions surrounding the express remedies, we necessarily assumed that the express remedies were not exclusive. Otherwise there would have been no danger of nullification. Conversely, because the added burden of proving scienter attaches to suits under Section 10(b), invocation of the Section 10(b) remedy will not "nullify" the procedural restrictions that apply to the express remedies.19

This cumulative construction of the remedies under the 1933 and 1934 Acts is also supported by the fact that, when Congress comprehensively revised the securities laws in 1975, a consistent line of judicial decisions had permitted plaintiffs to sue under Section 10(b) regardless of the availability of express remedies. In 1975 Congress enacted the "most substantial and significant revision of this country's Federal securities laws since the passage of the Securities Exchange Act in 1934."20 See Securities Acts Amendments of 1975, Pub.L. No. 94-29, 89 Stat. 97. When Congress acted, federal courts had consistently and routinely permitted a plaintiff to proceed under Section 10(b) even where express remedies under Section 11 or other provisions were available.21 In light of this well-established judicial interpretation, Congress' decision to leave Section 10(b) intact suggests that Congress ratified the cumulative nature of the Section 10(b) action. See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, --- U.S. ----, ----, 102 S.Ct. 1825, 1841, 72 L.Ed.2d 182 (1982); Lorillard v. Pons, 434 U.S. 575, 580-581, 98 S.Ct. 866, 870, 55 L.Ed.2d 40 (1978).

A cumulative construction of the securities laws also furthers their broad remedial purposes. In enacting the 1934 Act, Congress stated that its purpose was "to impose requirements necessary to make [securities] regulation and control reasonably complete and effective." 15 U.S.C. § 78b. In furtherance of that objective, Section 10(b) makes it unlawful to use "any manipulative or deceptive device or contrivance" in connection with the purchase or sale of any security. The effectiveness of the broad proscription against fraud in Section 10(b) would be undermined if its scope were restricted by the existence of an express remedy under Section 11.22 Yet we have repeatedly recognized that securities laws combating fraud should be construed "not technically and restrictively, but flexibly to effectuate [their] remedial purposes." SEC v. Capital Gains Research Bureau, 375 U.S. 180, 195, 84 S.Ct. 275, 284, 11 L.Ed.2d 237 (1963). Accord: Superintendent of Insurance v. Bankers Life & Cas. Co., 404 U.S. 6, 12, 92 S.Ct. 165, 169, 30 L.Ed.2d 128 (1971); Affiliated Ute Citizens v. United States, 406 U.S. 128, 151, 92 S.Ct. 1456, 1471, 31 L.Ed.2d 741 (1972). We therefore reject an interpretation of the securities laws that displaces an action under Section 10(b).23

Accordingly, we hold that the availability of an express remedy under Section 11 of the 1933 Act does not preclude defrauded purchasers of registered securities from maintaining an action under Section 10(b) of the 1934 Act. To this extent the judgment of the court of appeals is affirmed.

In a typical civil suit for money damages, plaintiffs must prove their case by a preponderance of the evidence.24 Similarly, in an action by the SEC to establish fraud under Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), we have held that proof by a preponderance of the evidence suffices to establish liability. SEC v. C.M. Joiner Leasing Corp., 320 U.S. 344, 355, 64 S.Ct. 120, 125, 88 L.Ed. 88 (1943). "Where . . . proof is offered in a civil action, as here, a preponderance of the evidence will establish the case . . . ." Ibid. The same standard applies in administrative proceedings before the SEC25 and has been consistently employed by the lower courts in private actions under the securities laws.26

The Court of Appeals nonetheless held that plaintiffs in a Section 10(b) suit must establish their case by clear and convincing evidence. The Court of Appeals relied primarily on the traditional use of a higher burden of proof in civil fraud actions at common law. 640 F.2d, at 545-546. Reference to common law practices can be misleading, however, since the historical considerations underlying the imposition of a higher standard of proof have questionable pertinence here.27 See Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 744-745, 95 S.Ct. 1917, 1929, 44 L.Ed.2d 539 (1975) ("[T]he typical fact situation in which the classic tort of misrepresentation and deceit evolved was light years from the world of commercial transactions to which Rule 10b-5 is applicable."). Moreover, the antifraud provisions of the securities laws are not coextensive with common law doctrines of fraud.28 Indeed, an important purpose of the federal securities statutes was to rectify perceived deficiencies in the available common law protections by establishing higher standards of conduct in the securities industry. See SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 186, 84 S.Ct. 275, 279, 11 L.Ed.2d 237 (1963). We therefore find reference to the common law in this instance unavailing.

Where Congress has not prescribed the appropriate standard of proof and the Constitution does not dictate a particular standard, we must prescribe one. See Steadman v. SEC, 450 U.S. 91, 95, 101 S.Ct. 999, 1004, 67 L.Ed.2d 69 (1981). See generally Blue Chip Stamps v. Manor Drug Stores, supra, 421 U.S., at 749, 95 S.Ct., at 1931 (private cause of action under Section 10(b) and Rule 10b-5 must be judicially delimited until Congress acts). In doing so, we are mindful that a standard of proof "serves to allocate the risk of error between the litigants and to indicate the relative importance attached to the ultimate decision." Addington v. Texas, 441 U.S. 418, 423, 99 S.Ct. 1804, 1808, 60 L.Ed.2d 323 (1979). See also In re Winship, 397 U.S. 358, 370-371, 90 S.Ct. 1068, 1075, 25 L.Ed.2d 368 (1970) (Harlan, J., concurring). Thus, we have required proof by clear and convincing evidence where particularly important individual interests or rights are at stake. See, e.g., Santosky v. Kramer, --- U.S. ----, 102 S.Ct. 1388, 71 L.Ed.2d 599 (1982) (proceeding to terminate parental rights); Addington v. Texas, supra (involuntary commitment proceeding); Woodby v. INS, 385 U.S. 276, 285-286, 87 S.Ct. 483, 487, 17 L.Ed.2d 362 (1966) (deportation).29 By contrast, imposition of even severe civil sanctions that do not implicate such interests has been permitted after proof by a preponderance of the evidence. See, e.g., United States v. Regan, 232 U.S. 37, 48-49, 34 S.Ct. 213, 217, 58 L.Ed. 494 (1914) (proof by a preponderance of the evidence suffices in civil suits involving proof of acts that expose a party to a criminal prosecution). Thus, in interpreting a statutory provision in Steadman v. SEC, supra, we upheld use of the preponderance standard in SEC administrative proceedings concerning alleged violations of the antifraud provisions. The sanctions imposed in the proceedings included an order permanently barring an individual from practicing his profession. And in SEC v. C.M. Joiner Leasing Corp., 320 U.S., at 355, 64 S.Ct., at 125, we held that a preponderance of the evidence suffices to establish fraud under Section 17(a) of the 1933 Act.

A preponderance-of-the-evidence standard allows both parties to "share the risk of error in roughly equal fashion." Addington v. Texas, 421 U.S., at 423, 99 S.Ct., at 1808. Any other standard expresses a preference for one side's interests. The balance of interests in this case warrants use of the preponderance standard. On the one hand, the defendants face the risk of opprobrium that may result from a finding of fraudulent conduct, but this risk is identical to that in an action under Section 17(a), which is governed by the preponderance-of-the-evidence standard. The interests of defendants in a securities case do not differ qualitatively from the interests of defendants sued for violations of other federal statutes such as the antitrust or civil rights laws, for which proof by a preponderance of the evidence suffices. On the other hand, the interests of plaintiffs in such suits are significant. Defrauded investors are among the very individuals Congress sought to protect in the securities laws. If they prove that it is more likely than not that they were defrauded, they should recover.

We therefore decline to depart from the preponderance-of-the-evidence standard generally applicable in civil actions.30 Accordingly, the Court of Appeals' decision as to the appropriate standard of proof is reversed.

The judgment of the Court of Appeals is affirmed in part and reversed in part and otherwise remanded for proceedings consistent with this opinion.

It is so ordered.

Justice POWELL took no part in the decision of these cases.