Full opinion text
HERLANDS, District Judge. Does the amended complaint against the eleven defendants state a claim upon which relief can be granted under the Investment Company Act of 1940, 15 U.S.C.A. § 80a-l et seq.? The question is raised by motions pursuant to F.R.Civ.P., rule 12(b) (1) and (6), 28 U.S.C.A., made by the attorneys for defendants Calvin Bullock, Ltd., Hugh Bullock and Robert E. Clark, and by the attorneys for defendants Arthur F. Burns, Grayson Kirk and Frank Pace, Jr. The motions are opposed by the plaintiffs and, to the extent that certain questions of law are involved, by the Securities and Exchange Commission as amicus curiae. Because the facts well-pleaded in the amended complaint and the inferences reasonably flowing therefrom are deemed admitted arguendo, the pending motions raise only issues of law. However, counsel differ radically in their formulation of those issues. It has thus become necessary to analyze the allegations of the amended complaint in detail 'in order to place the issues in correct and sharp focus. The Investment Company Act of 1940 will be referred to as “the 1940 Act” or “the Act”; the Securities Act of 1933, 15 U.S.C.A. § 77a et seq., as “the 1933 Act”; the Securities Exchange Act of 1934, 15 U.S.C.A. § 78a et seq., as “the 1934 Act”; the defendant Dividend .Shares, Inc., as the “Fund”; the defendant Calvin Bullock, Ltd., as the “Management Company”; ,tiie Securities and Exchange Commission, as the “Commission” ; and the amended complaint as “the complaint.” Allegations of the Complaint. Jurisdiction Jurisdiction rests on the Act and “on the principles of pendent jurisdiction” (par. 1). There is no allegation or claim of diversity of citizenship. Plaintiffs Plaintiffs are and have been shareholders of the Fund since October 14, 1955 and at the times of the transactions complained of [par. 2(a)]. Capacities in Which Plaintiffs Are Suing The action is brought by plaintiffs “derivatively on behalf of the Fund and representatively on behalf of themselves and all other shareholders of the Fund similarly situated” [par. 2(b)]. “The Fund has about 100,000 shareholders, scattered all over the United States and foreign countries. Their identity is subject to frequent changes by reason of sales of new shares and redemptions of old ones” [par 20(d)]. “The shareholders constitute a class so numerous as to make it impracticable to bring them all before the Court. Plaintiffs will fairly insure their adequate representation” (par. 21). The Fund, Its Organization and Character The Fund, a Maryland corporation organized on July 25, 1932 with its principal office at One Wall Street, Manhattan, N. Y., was and is “registered under the Act as a diversified open-end management investment company” (pars. 3, 17). Its shares “have been and are being offered for sale and sold to the public on a continuous basis” (par. 3). The Nine Individual Defendants and Two Corporate Defendants The nine individual defendants are the directors of the Fund. They have served as such directors since prior to October 14, 1955, except that defendants Burns and Kirk became directors in 1958, and defendants Clark and Taylor in 1959. Since prior to October 14, 1955 and to date, defendant Bullock has been the president of the Fund (par. 4). The two corporate defendants are the Fund and the Management Company. Net Asset Value of the Fund . The net asset value of the Fund was $188,548,815 on October 31, 1955 and $254,701,160 on April 30, 1960. Its high was $267,612,897 on October 31, 1959 (par. 5). The Management Company The Management Company, a corporation with its principal office at One Wall Street, Manhattan, N. Y., was and is “the investment adviser of the Fund” and “the principal underwriter and sole distributor of the shares of the Fund” (par. 6). The Management Company was and is “the investment adviser” of two other domestic diversified open-end management investment companies known as Bullock Fund, Ltd. (“Bullock Fund”) and Nation-Wide Securities Company, Inc. (“Nation-Wide”) [par. 12(a)]. The operative facts of the occurrences and transactions giving rise to the plaintiffs’ claim, as pleaded (cf. Schwartz v. Eaton, 2 Cir., 1959, 264 F.2d 195, 196 note 2, 197 note 3, will be spotlighted by collating related allegations of the complaint. The following recitals are quoted from the complaint or are close paraphrases. The Complete Domination and Control of the Fund by the Defendant-Management Company and the Defendants Bullock and Clark. I. The Management Company has two contracts (annually extended) with the Fund: an “underwriting” contract and an “investment advisory” contract. By the underwriting contract, the Management Company was and is the principal underwriter of the Fund and the sole distributor of the Fund’s shares (par. 11). By the investment advisory contract the Management Company was and is the investment adviser of the Fund (pars. 6, 10). The Management Company supervises the Fund’s portfolio securities and pays certain of the Fund’s expenses (par. 10). Defendant Bullock is the president of both the Management Company and the Fund. He is also a director of both companies. He owns a majority of the shares of the Management Company (par. 7). Defendant Clark, the executive vice-president of the Management Company, is a director of both companies (par. 7). Officers or associates of the Management Company are the three vice-presidents, the secretary and the treasurer of the Fund (par. 7). II. The defendants Bullock, Clark and the Management Company completely dominated and controlled the Fund, not only by virtue of their above-indicated intimate and interlocking relationship, but also by their: A. Selecting and nominating each of the Fund’s directors (par. 8). These directors receive substantial compensation as such Fund directors and also receive additional substantial compensation as directors of other investment companies, for which latter positions they were likewise selected by Bullock, Clark and the Management Company (par. 8). The Fund’s directors are either affiliated with or beholden to Bullock, Clark and the Management Company (par. 8). B. Dominating and controlling: (1) the Fund’s board of directors; (2) the Fund’s management; (3) the Fund’s personnel; and (4) the Fund’s business and affairs [par. 9(a)]. The Wrongful Transactions Concerning the Investment Advisory Contract and Its Yearly Extensions. I. The relative positions of the defendants in such transactions were as follows: Bullock, Clark and the Management Company “caused” the transactions. The other eight defendants “participated or acquiesced in” such transactions “with knowledge or notice of their wrongful character” [par. 9(b)]. II. The voting of the Investment Advisory Contract and its yearly extensions took place under the following circumstances: A. Since prior to 1955, the Fund’s board of directors has annually voted to continue the investment advisory contract with the Management Company (par. 10). B. The adoption of that contract and its yearly extensions was the result of “the arbitrary action, collusion, gross negligence or reckless disregard of duty of the individual defendants and the Management Company” [par. 15(a)], The individual defendant-directors of the Fund “abdicated their functions” by acts of commission and omission [par. 15(c)], in that they “made no effort to ascertain whether” some organization other than the Management Company could be secured to supply the same investment advisory services “on terms more advantageous to the Fund” and they made no effort to persuade or bargain at arm’s length with the Management Company to supply such services on terms more advantageous to the Fund [par. 15(b)]. C. Since prior to 1955, false and misleading proxy statements (filed with the Commission and mailed to the Fund’s shareholders) were used by the defendants to bring about the election of the defendant-directors of the Fund and to induce inaction by the Fund’s stockholders with respect to their statutory right [under the Act, section 15(a) (3)] to terminate the investment advisory contract or to seek its renegotiation on terms more favorable to the Fund (par. 19). “The proxy statements represented to the shareholders that the investment advisory arrangements between the Fund and the Management Company were ‘similar to the arrangements between Calvin Bullock, Ltd. [i. e., the Management Company] and five other companies.’ The reference to ‘five other companies’ was intended to and did include the Bullock Fund and NationWide” [par. 19(b)]. “Such representation was, to defendants’ knowledge or notice, an untrue statement of a material fact and omitted to set forth facts necessary in order to prevent said representation, in the light of the circumstances under which it was made, from being materially misleading, in that the investment advisory arrangements of the Management Company with the Fund called for a substantially larger fee than the corresponding arrangements of the Management Company with the Bullock Fund' and with Nation-Wide” [par. 19(c)]. III. The operation and character of the Investment Advisory Contract and its yearly extensions involved the following features: A. For the five fiscal years of 1955 to 1959 and the six months ended April 30, 1960, the Management Company received from the Fund investment advisory fees totaling $4,421,435 (par, 10). B. The investment advisory fees charged by the Management Company to the Fund were and are one-half of one percent of the first $100,000,000 net assets and one-quarter of one percent of any excess above $100,000,000 (par. 12). The Management Company did and now does act as the investment adviser of Bullock Fund, Ltd. and Nation-Wide Securities Company, Inc. The Management Company’s services to the Fund have been and are “substantially the same in nature and extent” as its services to the Bullock Fund and NationWide. Nevertheless, the investment advisory fees charged by the Management Company to the Bullock Fund and to Nation-Wide were and are “much smaller, proportionately and absolutely, than those charged by it to the Fund” (par. 12). C. This method is “grossly unfair” for the stated reason that once the net assets exceed $100,000,000 the fixed percentage of one-quarter of one percent is not scaled down as the value of the net assets increases, although the services of the Management Company remain constant regardless of the net asset value of the Fund. This arrangement will become increasingly more harmful to the Fund (par. 13). D. The amounts received by the Management Company from the Fund as investment advisory fees “were and are excessive and out of proportion to the value of the services performed, as the defendants knew or should have known” (par. 16). E. The payments of the investment advisory fees by the Fund and their receipt by the Management Company, under the above-stated conditions and circumstances, constituted : (1) An “unlawful and willful conversion” by the defendants of the Fund’s moneys, property and assets to the use of the Management Company. This was a violation of section 37 of the Act (par. 17). (2) “Gross abuse of trust, gross misconduct, willful misfeasance, bad faith, gross negligence or reckless disregard of official and contractual duties by the defendants” (par. 17). This was a violation of the statutory duties imposed upon the defendant-directors as directors and upon the defendant-Management Company as investment adviser. These duties were imposed by the Act, sections 1(b) (2), 10, 15, 17(h) and (i), and 36 (par. 17). (3) A breach by the defendants of “their fiduciary duties to the Fund” to the defendants’ benefit and profit and “a gift, waste and a spoliation of the assets of the Fund” to the defendants’ benefit and profit. This was a “violation of New York and Maryland laws” (par. 17). F. The following were and are the results of the defendants’ use of false proxy statements referred to above: (1) The defendant-directors were elected and they voted the yearly extensions of the investment advisory contract (par. 19). (2) “[T]he shareholders of the Fund failed to exercise their rights to terminate the investment advisory contract” under the Act, section 15(a) (3) or to seek its renegotiation on terms more favorable to the Fund [par. 19(g)]. (3) The Fund and its shareholders suffered great damage [par. 19(g)]. (4) The defendants profited [par. 19 (*)]• (5) The defendants’ use of such false proxy statements was a violation of the Act, sections 20(a) and 34(b) and a violation of the Commission’s Rules 270.20a-l(a) and X-14A-9 [par. 19(d)]. IV. By reason of the above-stated premises the investment advisory contract and its yearly extensions are “void,” the invalidity appearing more particularly as follows: A. The contract and its yearly' extensions are rendered void by virtue of the Act, section 47(b) and New York and Maryland law (par. 18). B. The above-described use of false proxy statements invalidated the elections of the defendant-directors of the Fund [par. 19(e)]. C. Inasmuch as the invalidly elected defendant-directors of the Fund lacked the power to exercise the functions of directors of the Fund, the yearly extensions of the investment advisory contract were illegal and void so far as concerns the defendants, by virtue of the Act, section 47(b) and New York and Maryland law [par. 19(f)]. The Wrongful Transactions Concerning the Underwriting Contract and Its Yearly Extensions. I. The relative positions of the defendants in such transactions were as follows: Bullock, Clark and the Management Company “caused” the transactions. The other eight defendants “participated or acquiesced in” such transactions “with knowledge or notice of their wrongful character” [par. 9(b)]. II. The voting of the Underwriting Contract and its yearly extensions took place under the following circumstances: A. Since prior to 1955, the Fund’s board of directors has annually voted to continue the Underwi'iting Contract with the defendant-Management Company (par. 11). B. The adoption of the Underwriting Contract and its yearly extensions was the result of “the arbitrary action, collusion, gross negligence or reckless disregard of duty of the individual defendants and the Management Company” [par. 15(a)]. The individual defendant-directors of the Fund “abdicated their functions” by acts of commission and omission [par. 15(c)], in that they “made no effort to ascertain whether” some organization other than the Management Company could be secured to supply the same underwriting services on terms more advantageous to the Fund and they made no effort to persuade or bargain at arm’s length with the Management Company to supply such services on terms more advantageous to the Fund [par. 15(b)]. III. The operation and character of the Underwriting Contract and its yearly extensions involved the following features: A. The Management Company did and does charge the following salesload for selling the Fund’s shares: eight and two-thirds percent of the sales price on transactions under $10,000; seven and one-half percent on transactions involving from $10,000 to $24,999, and smaller percentages on larger transactions (par. '14). Pursuant to the Underwriting Contract, the Management Company did and now does act as “the principal underwriter and sole distributor” of the Fund’s shares. Under this contract, the Management Company “charges the purfhasers of the shares” the salesload or commission above-stated (par. 11). The Management Company was and is the principal underwriter and sole distributor of the shares of Nation-Wide Securities Company, Inc., another domestic diversified open-end management investment company. The salesload charged by the Management Company, in the case of Nation-Wide, was and is seven and one-half percent of the sales price on transactions under $25,000; and smaller percentages on larger transactions. The sale of the Fund’s shares did and does require “no greater efforts or expenses than the sale of the shares of Nation-Wide” (par. 14). B. For the five fiscal years of 1955 to 1959, the Management Company realized from the sales of the Fund’s shares (and after deducting all commissions and charges paid to agents or other investment dealers) a sum totaling $2,168,966 (par. 11). C. The amounts received by the Management Company as salesload were and are “excessive and out of proportion to the value of the services performed, as the defendants knew or should have known” (par. 16). D. “Such excessive payments and the receipt thereof by the Management Company,” under the above-stated conditions and circumstances, constituted: (1) An “unlawful and willful conversion” by the defendants of the Fund’s moneys, property and assets to the use of the Management Company. This was a violation of the Act section 37 (par. 17). (2) “Gross abuse of trust, gross misconduct, willful misfeasance, bad faith, gross negligence or reckless disregard of official and contractual duties by the defendants.” This was a violation of the statutory duties imposed upon the defendant-directors as directors and upon the defendant-Management Company (par. 17). These duties were imposed by the Act, sections 1(b) (2), 10, 15, 17 (h) and (i), and 36 (par. 17). (3) A breach by the defendants of “their fiduciary duties to the Fund” to the defendants’ benefit and profit and “a gift, waste and spoliation of the assets of the Fund” to the defendants’ benefit and profit. This was a “violation of New York and Maryland laws” (par. 17). IV. By reason of the premises, the Underwriting Contract and its yearly extensions are “void” by virtue of the Act, section 47(b) and New York and Maryland law (par. 18). Futility of Demand on Fund’s Board of Directors. “Demand on the Board of Directors of the Fund to bring this action would be futile since all or at least a majority of the directors participated in the wrongful transactions complained of” (par. 20). Futility and Lack of Necessity of Demand on Fund’s Shareholders. “Demand on the shareholders of the Fund to bring this action is unnecessary and would be futile because”: (a) The transactions are “incapable of ratification by less than the unanimous' vote of all shareholders” because the transactions “were in violation of law, constituted gifts and waste of corporate assets and a fraud on the Fund” [par. 20(a)]. (b) “The shareholders cannot by resolution or otherwise require the Fund or its Board of Directors to bring an action” [par. 20(b)]. (c) “Even if the shareholders were to direct the Board of Directors to bring this action, its control would lie in the hostile hands of the directors, who could not be entrusted with its effective prosecution” [par. 20 (c) ]. (d) For reasons detailed, a proxy fight with the management would be prohibitively expensive, dilatory, and undesirable from the viewpoint of possible laches and time-bar [par. 20(d)]. Impracticability of Bringing All Shareholders Before the Court The shareholders (about 100,000) are so numerous as to make it impracticable to bring them all before the Court (par. 21). Prayer for Relief Plaintiffs pray for judgment: 1. “Declaring the investment advisory contract and its extensions to be null and void.” 2. “Declaring the underwriting contract and its extensions to be null and void.” 3. Requiring the Management Company and the individual defendants “to repay the investment advisory fees to the Fund.” 4. Requiring the Management Company and the individual defendants “to account to the Fund and its shareholders for profits and damages.” 5. “Allowing plaintiffs the costs and expenses of this action, including reasonable counsel fees.” The Issues. This one-count complaint, cast in terms of both a derivative and representative stockholder’s action, charges violations of the following eight sections of the Act. The dispositive issues are: I. Whether the statutory provisions upon which the plaintiffs’ claim is based created any duties owing by the defendants to the Fund or to the plaintiffs. II. Whether the defendants’ acts as alleged in the complaint violated any of those duties. III. Whether the plaintiffs can bring this action in this court to enforce the liabilities and duties created by the Act. These issues pose a problem of statutory interpretation requiring a view in depth. It is interpretation of the various statutory provisions — not fragmented into isolated sections nor subjected to mere black-letter reasoning — as integrated parts of a remedial enactment possessing a fundamental unity of specific policy and stated objectives. The Act regulates the entire investment company industry. Congress sought to regulate that industry as comprehensively as the banking and insurance businesses are regulated. The Act is pervasive in scope and detail. In addition, the Commission is given broad power to promulgate rules, regulations and orders. The Act is to be sharply contrasted with the much narrower Securities Act of 1933 and the Securities and Exchange Act of 1934. The 1933 and 1934 Acts articulated only a policy of disclosure and securities registration and the regulation of certain securities practices. On the other hand, the 1940 Act placed the investment company business under close but workable regulation. One of the •cogent reasons for the passage of the 1940 Act was the inadequacy of the 1933 and 1934 Acts to cope with the grave abuses and evils that had developed in some quarters of the investment company business. Those abuses and evils documented in fastidious and convincing detail were placed before the Senate and House Committees by the special investigating staff of the Securities and Exchange Commission. The investigation lasted four years. Comprehensive hearings were held. Technical studies and survey reports, case memoranda and comparative legislative studies, subject by subject, were submitted to the Congressional committees. The investment companies industry, through counsel and company executives, submitted their views on the record. These industry representatives worked in close cooperation with the Commission’s staff. Industry recognized the abuses and evils; sought their elimination; and welcomed regulation, not only for the protection of the public and the investors, but for the good of legitimate companies. Eventually, the representatives of industry and the Commission expressed their agreement in a written memorandum dated May 13, 1940. This embodied the framework of an acceptable statute. The product of that compromise agreement was the 1940 Act. In terms of draftsmanship, the 1940 Act was to some extent built upon the cognate provisions of the 1933 and 1934 Acts, the Public Utility Holding Company Act of 1935, 15 U.S.C.A. § 79 et seq., the Trust Indenture Act of 1939, 15 U.S.C.A. § 77aaa et seq., and other regulatory statutes. But to a major degree, the 1940 Act was freshly designed and constructed to meet realistically the particular requirements and the special problems of the investment company business. The foregoing barest outline is fulsomely documented in the following records of the 76th Congress, 3d Session: Senate Report No. 1775 (Report to accompany S. 4108), June 6, 1940, Committee on Banking and Currency. [S. 4108 was a substitute for S. 3580, introduced March 14, 1940.] Hearings before a Subcommittee of the Committee on Banking and Currency, U. S. Senate, on S. 3580, Part 1 (April 2, 3, 4, 5, 8, 9, and 10, 1940); Part 2 (April 12, 15, 16, 17, 18, 19, 22, 23, 24, 25, and 26, 1940); Part 3 (Exhibits) ; Part 4 (May 31 and June 4, 1940). House of Representatives Report No. 2639 (Report to accompany H.R. 10065), June 18, 1940, Committee on Interstate and Foreign Commerce. Hearings before a Subcommittee of the Committee on Interstate and Foreign Commerce, House of Representatives, on H.R. 10065 (June 13 and June 14, 1940). All of the above legislative material has received the Court’s close study in connection with the pending motions. Except as may otherwise be indicated, citations to and quotations from the Senate and House Hearings and Reports refer to the above-mentioned hearings and reports. There will be occasion to consider the legislative history of particular sections in the course of this opinion. At this juncture, however, it is necessary to spotlight a preliminary but highly significant provision: Congress built into the statute a canon of construction. This is set forth in the concluding sentence of section 1, as follows: “It is hereby declared that the policy and purposes of this title, in accordance with which the provisions of this title shall be interpreted, are to mitigate and, so far as is feasible, to eliminate the conditions enumerated in this section which adversely affect the national public interest and the interest of investors.” This is more than a mere exordium. It is a directive to the courts. Section 1, entitled “Findings and Declaration Of Policy,” finds “that the investment companies are affected with a national public interest” in the light of five enumerated factors, recited in subsection “(a).” The fifth of such factors, referring to the inadequacy of “State regulation,” reads as follows (emphasis supplied): “(5) the activities of such companies, extending over many States, their use of the instrumentalities of interstate commerce and the wide geographic distribution of their security holders, make difficult, if not impossible, effective State regulation of such companies in the interest of investors.” Section 1 then declares “that the national public interest and the interest of investors are adversely affected” in eight generalized situations, which are recited in subsection (b). The following of such situations are pertinent to a consideration of the issues herein (emphasis supplied) : “(1) when investors purchase, pay for, exchange, receive dividends upon, vote, refrain from voting, sell, or surrender securities issued by investment companies without adequate, accurate, and explicit information, fairly presented, concerning the character of such securities and the circumstances, policies, and financial responsibility of such companies and their management: “(2) when investment companies are organized, operated, managed, or their portfolio securities are selected, in the interest of directors, officers, investment advisers, depositors, or other affiliated persons thereof, in the interest of underwriters, brokers, or dealers, in the interest of special classes of their security holders, or in the interest of other investment companies or persons engaged in other lines of business, rather than in the interest of all classes of such companies’ security holders; “(3) when investment companies issue securities containing inequitable or discriminatory provisions, or fail to protect the preferences and privileges of the holders of their outstanding securities; “(4) when the control of investment- companies is unduly concentrated through pyramiding or inequitable methods of control, or is inequitably distributed, or when investment companies are managed by irresponsible persons; ****** “(6) when investment companies are reorganized, become inactive, or change the character of their business, or when the control or management thereof is transferred, without the consent of their security holders; * * * ” The foregoing explicit enumeration of the conditions which adversely affect the national public interest and the interest of investors, together with the congressionally promulgated canon of construction, constitute a frame of reference for the problems of interpretation involved in this case. The defendants do not dispute that the complaint alleges “common law charges of waste and breach of fiduciary duty” (defendants’ brief, 2-3, 5). According to the defendants, “the essence” of the complaint is that “the investment advisory fees paid by” the Fund to the Management Company “are excessive and wasteful” (defendants’ brief, 2). As formulated by the defendants, the issues are whether the Act regulates “the size of the investment advisory fee” or limits “the underwriting commissions”; whether federal jurisdiction can be predicated “upon alleged violations of the SEC proxy rules” asserted “in a derivative action”; and whether federal jurisdiction can be predicated upon “a representative claim” based “solely upon allegations that ‘excessive’ underwriting commissions were paid by a purchaser of securities” (defendants’ brief, 5). The defendants’ formulation oversimplifies and incorrectly frames the issues. The defendants ignore the following additional allegations and the permissible inferences therefrom on these motions : that the defendants knew the compensation to be excessive; that the so-called independent directors were beholden to Bullock and Clark for lucrative positions; that they were dominated and controlled by Bullock and Clark; that the Fund’s personnel, business, affairs, management and operations were completely dominated and controlled by Bullock, Clark and the Management Company; that the board of directors of the Fund had abdicated their functions in favor of Bullock, Clark and the Management Company; that the Fund’s contracts with the Management Company were the result of collusion between the Fund’s directors and the Management Company and designed for the benefit of the fiduciary (the Management Company) to the detriment of the Fund; that the Fund’s directors abdicated their statutory duty to use their judgment in approving the annual extensions of the investment advisory and underwriting contracts; that false and misleading proxy statements transmitted by the defendants were used to induce the Fund’s stockholders to forego the exercise of their statutory, absolute privilege to terminate the investment advisory contract at any time; in brief, that the Fund became a mere adjunct of the Management Company through the defendants’ gross misconduct and gross abuse of trust. As pleaded, the excessive fees or commissions and breaches of fiduciary duties were only some of the elements in a complete emasculation of the Fund- by the Management Company and the defendants for their own benefit in violation of specific provisions of the Act. The court is now dealing with matters of pleading and not of proof. This aspect of the case must be emphasized in fairness to both the plaintiffs and the defendants. Plaintiffs invoke federal jurisdiction not. only under the “federal question” statute (28 U.S.C. § 1331) but principally under section 44 of the 1940 Act and the doctrine of pendent jurisdiction. Section 44 provides, in relevant part: “The district courts of the United States and the United States courts of any Territory or other place subject to the jurisdiction of the United States shall have jurisdiction of violations of this title or the rules, regulations, or orders thereunder, and, concurrently with State and Territorial courts, of all suits in equity and actions at law brought to enforce any liability or duty created by, or to enjoin any violation of, this title or the rules, regulations, or orders thereunder. * * * Any suit or action to enforce any liability or duty created by, or to enjoin any violation of, this title or rules, regulations, or orders thereunder, may be brought in any such district or in the district wherein the defendant is an inhabitant or transacts business, and process in such cases may be served in any district of which the defendant is an inhabitant or transacts business or wherever the defendant may be found. Judgments and decrees so rendered shall be subject to review as provided in sections 128 and 240 of the Judicial Code, as amended, and section 7, as amended, of the Act entitled ‘An Act to establish a court of appeals for the District of Columbia’, approved February 9, 1893. * * * ” (Emphasis supplied.) The only issue is whether the complaint alleges claims arising under the 1940 Act, of which this court has jurisdiction under section 44. Once jurisdiction under section 44 is established, this court has the power also to adjudicate any common law claims involved in the action, if the proof to sustain the federal and non-federal claims is the same. Schwartz v. Eaton, 2 Cir., 1959, 264 F.2d 195; Hurn v. Oursler, 1933, 289 U.S. 238, 53 S.Ct. 586, 77 L.Ed. 1148; Zalkind v. Scheinman, 2 Cir., 1943, 139 F.2d 895, 902. The plaintiffs do not contend that, where there are grounds for a derivative stockholder’s action, the case involves a “federal question” simply because the corporation is a registered investment company. The plaintiffs recognize that a stockholder’s derivative action, even though otherwise well founded, cannot be brought in the federal court merely because the corporation is a registered investment company. Such a company may have a non-federal claim, e. g., for breach of contract, mismanagement or simple negligence. It is undisputed that, under such circumstances, neither the company itself nor a stockholder on its behalf can. take that claim into the federal forum. Plaintiffs’ position is that specific sections of the Act impose specific duties upon the directors, investment advisers and principal underwriters of registered companies; and that section 44 grants federal jurisdiction if violations of these-specific statutory duties are alleged. In the final analysis, therefore, the-determinative question is whether, on the facts pleaded, the defendants were under a “liability or duty created by” the Act,, within the purview of section 44. If so, this court has jurisdiction because the liabilities sought to be enforced are created by the Act. The interrelated question is whether section 44 grants this court jurisdiction of this private action brought to enforce liabilities under the-Act. That federal jurisdiction under section 44 includes jurisdiction of actions, brought by private parties, including-stockholders’ suits, to enforce any liability or duty created by the Act has been held in such cases as Cogan v. Johnston, D.C.S.D.N.Y.1958, 162 F.Supp. 907 and Schwartz v. Bowman, D.C.S.D.N.Y.1957, 156 F.Supp. 361, appeal dismissed Schwartz v. Eaton, 2 Cir., 1959, 264 F.2d 195. In Cogan, supra, the action was both-derivative and representative. It was-brought against the corporation and four directors and officers. The action was based upon section 7 of the 1940 Act and sought an injunction and the appointment of a receiver. The court denied defendants’ motion under F.R.Civ.P. rule 12(b),, that was grounded on lack of jurisdiction and on exclusive primary jurisdiction in the SEC. There were two causes of action. Both sought an injunction against the continuing violations of the Act, against the individual defendants preventing them from continuing as officers and directors-of the company, and the appointment of a receiver to enable the company to comply with the Act. Jurisdiction for both causes was predicated on section 44 of the Act. Jurisdiction for the second cause was also predicated on section 36 of the Act. The first claim charged that the defendants, “in pursuance of a conspiracy to circumvent the Act” (162 F.Supp. at page 908) applied for and obtained an order of “deregistration” from the SEC as a result of which the company (an investment company) became an unregistered investment company and “in numerous ways” was violating the Act; and that the indvidual defendants were conspiring “to freeze out the public stockholders” of the company “by transactions in violation of the Act” (at page 908). The second claim alleged that the individual defendants caused the company “to violate the Act for their own interests” exclusively and that they have been guilty of “gross abuse of trust as corporate officers and directors” (at page 908). The court (Judge Edelstein) made the following points: 1. That, in a proper case, an individual may bring an action in the District Court to enforce liabilities or to enjoin violations under the Act (at page 909). 2. The first claim was, therefore, properly in the District Court because it is based on “violations by an unregistered investment company under section 7 [of the Act] 15 U.S. § 80a-7, 15 U.S.C.A. § 80a-7” (at page 909). Section 7 specifically makes it unlawful for an unregistered investment company to sell, etc. stocks. 3. The second claim, so far as it was based on section 36, could not be sustained because section 36 authorizes the Commission to bring an action in respect of a registered investment company, whereas here the company was not registered (at page 909). 4. However, even the second claim alleged conduct by the individual defendants “in violation of the Investment Company Act.” Since it “does not appear to a certainty that the plaintiff is entitled to no relief under any state of facts which may be proved in support of his claim,” that claim would not be dismissed (at page 909). Cogan was cited with approval by the Court of Appeals in Schwartz v. Eaton, 2 Cir., 264 F.2d 195, at page 198, note 5. In Schwartz, supra, a derivative stockholder’s action was brought under sections 7 and 47 of the 1940 Act. The complaint alleged a violation of the Act “and of the ordinary fiduciary obligations of company officers and directors” (264 F.2d at page 196). The relief sought was to undo a transfer, for an accounting of profits and damages to the company. The action was predicated upon the allegation that the company had failed to register under section 7 of the Act and that, as a consequence, certain transactions were unlawful under section 47 of the Act. See 156 F.Supp. at pages 362, 364. The Court of Appeals held that the case was within the ambit of section 44. “In a reasoned decision * * * the district court held that the complaint * * * stated a claim under the Investment Company Act upon which relief can be granted. * * * That such remedies [injunctive and accounting] may be had under the Investment Company Act is made clear by the earlier part of Judge Dimock’s decision, D.C.S.D.N.Y., 156 F.Supp. 361; and see Breswick & Co. v. Briggs, D.C.S.D.N.Y., 136 F.Supp. 301; Cogan v. Johnston, D.C.S.D.N.Y., 162 F.Supp. 907.” 264 F.2d 196, 198, note 5. The Cogan and Schwartz decisions illustrate the doctrine of implied liability and private actions based on a statutory violation. There is “nothing novel” about that doctrine. Loss, Securities Regulation (1951) 1033,1040,1044,1060. While implied liability under the 1940 Act is not terra incognita, the problem under that Act, as under the other SEC statutes, is to ascertain limits and define boundaries. Loss, .supra, 1043-1098. This can be done only by the traditional case-by-case process of judicial inclusion and exclusion. In Taussig v. Wellington Fund, Inc., D.C.D.Del.1960, 187 F.Supp. 179, at page 216, 218, the court declared as “well founded” a private action based on section 35 of the Act, relating to the use of deceptive or misleading name. The defendants in that case unsuccessfully argued: “ * * * As far as the statute is concerned, the determination is of the Commission initially * * *, and it is given the right to maintain any necessary court proceedings. No private remedy can be implied from these explicit provisions lodging the right to act in the Commission. ‘Further, it is quite clear that this provision of the Investment Company Act was intended to protect investors and not to provide a remedy for the protection of the alleged property right of another in the word or words being used.’ ” The court, in overruling the contention that the plaintiffs did not have standing to assert the alleged violation, said: “Violation of a federal statute may accord a private litigant a remedy by implication notwithstanding the absence of specific statutory authority conferring upon the injured the right to redress statutory wrongs, for the common law will supply a remedy where the statute is silent. (Bell v. Hood, 1946, 327 U.S. 678, 684, 66 S.Ct. 773, 90 L.Ed. 939. Restatement of the Law of Torts, Vol. 2, § 286.) “The intention to create civil liability is presumed unless a contrary legislative intent is to be inferred from the whole purview of the Act. (Narramore v. Cleveland, C. C. & St. L. R. Co., 6 Cir., 1899, 96 F. 298, 300) “Section 286 of the Restatement of the Law of Torts, Vol. 2, p. 752 provides: “ ‘The violation of a legislative enactment by doing a prohibited act, or by failing to do a required act, makes the actor liable for an invasion of an interest of another if: “ ‘(a) the intent of the enactment is exclusively or in part to protect an interest of the other as an individual; and “‘(b) the interest invaded is one which the enactment is intended to protect; and “‘(c) where the enactment is intended to protect an interest from a particular hazard, the invasion of the interest results from that hazard; and “‘(d) the violation is a legal cause of the invasion, and the other has not so conducted himself as to disable himself from maintaining an action’. * * * ” 187 F.Supp. at page 217. “It is one thing to say that the three [SEC] statutes in question were drafted with the overall intent to protect the investing public but something quite different to conclude a competitor has no standing to prosecute a violation of these enactments. Clearly, the Commission would have been justified to launch an investigation into the alleged improper practices on the complaint of plaintiffs. * * * ****** “In the present context, federal statutory remedies accorded by implication must be held to extend to persons other than the investing public in certain compelling instances. To begin with, in particular circumstances the investors’ interest is peculiarly served by according remedial rights by implication to persons other than investors. The administrative agency exercising appropriate discretion may decide not to institute the required action to protect the injured litigants’ interests. Further, there may be no remedy conferred by State law, or in the case of an enterprise' engaged in multi-state activities, local relief may be entirely inadequate. The crux of the matter is, plaintiffs are not acting as private attorneys general, or as a special representative of the Commission. Plaintiffs are in Court in an attempt to vindicate the rights and protections which they claim are secured to Wellington Fund by virtue of Federal law.” At page 219. The matter of implied private actions will be further considered in the following discussion of this Court’s conclusion that the action at bar is brought to enforce a liability, created by section 37 of the Act, for the unlawful and willful conversion of the moneys or assets of the Fund. Section 37 of the Act relevantly provides : “Sec. 37. Whoever steals, unlawfully abstracts, unlawfully and willfully converts to his own use or to the use of another, or embezzles any of the moneys, funds, securities, credits, property, or assets of any registered investment company shall be deemed guilty of a crime, and upon conviction thereof shall be subject to the penalties provided in section 49 * * Although the Act does not explicitly confer a private remedy for a violation of section 37, the great weight of authority demonstrates that a private right of action must be implied. Each of the SEC statutes, of which the 1940 Act is one, is variously designed for the protection of the investing public. Each of said statutes commands or forbids certain acts or conduct in order to achieve this objective. In comparatively few instances, express provision is made for a right to private relief, as distinguished from criminal and administrative sanctions. [The 1933 Act: 15 U.S.C.A. §§ 77k, 77l, 77o, 77p. The 1934 Act: 15 U.S.C.A. §§ 78i(e), 78p(b), 78r, 78t. The Public Utility Holding Company Act of 1935: section 79p, 79q(b). The Trust Indenture Act of 1939: section 77www. The 1940 Act: 15 U.S.C.A. § 80a-29(f)]. Numerous decisions have held that— notwithstanding the absence of such private-remedy provisions — violations of the SEC statutes create a private right of action in favor of the persons sought to be protected by those statutes and against the violators. Loss, supra, 1043, et seq. Private remedies have been implied even though the same statute expressly provided for other private remedies. The rationale is phrased as follows in A. C. Frost & Co. v. Coeur D’Alene Mines Corp., 1941, 312 U.S. 38, 43, 61 S.Ct. 414, 417, 85 L.Ed. 500: “Courts have often added a sanction to those prescribed for an offense created by statute where the circumstances fairly indicated this would further the essential purpose of the enactment; * * In Texas & Pacific Ry. Co. v. Rigsby, 1916, 241 U.S. 33, 39, 36 S.Ct. 482, 484, 60 L.Ed. 874, the Court declared: “A disregard of the command of a statute is a wrongful act, and where it results in damage to one of the class for whose special benefit the statute was enacted, the right to recover the damages from the party in default is implied * * *.” Accord: Fairport, P. & E. R. Co. v. Meredith, 1934, 292 U.S. 589, 596-597, 54 S.Ct. 826, 78 L.Ed. 1446; Reitmeister v. Reitmeister, 2 Cir., 1947, 162 F.2d 691, 694; Abounader v. Strohmeyer & Arpe Co., 1926, 243 N.Y. 458, 465, 466, 154 N.E. 309; Restatement, Torts (1934), sections 286-288. In Bell v. Hood, 1946, 327 U.S. 678, 66 S.Ct. 773, 90 L.Ed. 939, the action was. for damages against defendants who were FBI agents charged with having detained the plaintiffs and having searched their premises in violation of the Fourth and Fifth Amendments. The' district court’s dismissal of the action for want of federal jurisdiction had been affirmed by the Court of Appeals, 9 Cir., 150 F.2d 96. In reversing, the Supreme Court (per Mr. Justice Black), expounded principles bearing directly on the case at bar. At page 681 of 327 U.S., at page 775 of 66 S.Ct., the Court said: “Whether or not the complaint as drafted states a common law action in trespass made actionable by state law, it is clear from the way it was drawn that petitioners [plaintiffs] seek recovery squarely on the grounds that respondents violated the Fourth and Fifth Amendments. * * * It cannot be doubted therefore that it was the pleaders’ purpose to make violation of these constitutional provisions the basis of this suit. Before deciding that there is no jurisdiction, the District Court must look to the way the complaint is drawn to see if it is drawn so as to claim a right to recover under the Constitution and laws of the United States. For to that extent, ‘the party who brings a suit is master to decide what law he will rely upon and * * * does determine whether he will bring a “suit arising under” the * * * [Constitution or laws] of the United States by his declaration or bill’ ” Mr. Justice Black continued (327 U.S. at pages 681-682, 66 S.Ct. at page 776): “[W]here the complaint, as here, is so drawn as to seek recovery directly under the Constitution or laws of the United States, the federal court, but for two possible exceptions later noted, must entertain the suit. “* * •» Thg previously carved out exceptions are that a suit may sometimes be dismissed for want of jurisdiction where the alleged claim under the Constitution or federal statutes clearly appears to be immaterial and made solely for the purpose of obtaining jurisdiction or where such a claim is wholly insubstantial and frivolous.” Mr. Justice Black declared (327 U.S. at page 684, 66 S.Ct. at page 777): “Moreover, where federally protected rights have been invaded, it has been the rule from the begins ning that courts will be alert to adjust their remedies so as to grant the necessary relief.” (Emphasis added.) Implied rights of action are not contingent upon statutory language which affirmatively indicates that they are intended. On the contrary, they are implied unless the legislation evidences a contrary intention. For example, the refusal of the courts to imply a private remedy under the National Labor Relations Act was based upon the fact that the statute by its terms gave the administrative agency the exclusive power to prevent unfair labor practices, and the Congressional reports specifically stated that no private right of action was contemplated. See Amalgamated Utility Workers v. Consolidated Edison Co., 1940, 309 U.S. 261, 267, 269, 60 S.Ct. 561, 84 L.Ed. 738. In a case involving purchases of securities effected in violation of the anti-fraud rules of the 1934 Act, Matheson v. Armbrust, 9 Cir., 1960, 284 F.2d 670, 673, the court held that, where plaintiff has a choice between suing in state or federal court to recover damages for the fraud which defendant perpetrated, “the long-established principle is applicable, that ‘the party who brings a suit is master to decide what law he will rely upon.’ The Fair v. Kohler Die & Specialty Co., 228 U.S. 22, 25, 33 S.Ct. 410, 411, 57 L.Ed. 716.” Accord: see Reed v. Riddle Airlines, 5 Cir., 1959, 266 F.2d 314, 315; Speed v. Transameriea Corp., D.C.D.Del.1951, 99 F.Supp. 808, modified and affirmed 3 Cir., 1956, 235 F.2d 369. Under the 1933 Act, which contains a specific civil recovery provision, a private cause of action has been implied for violations of the broader anti-fraud provisions of the statute, despite a narrower clause that expressly exempted the particular bonds from the misrepresentation provision. Thiele v. Shields, D.C.S.D.N.Y.1955, 131 F.Supp. 416, 419. The principle of implied liability was applied directly in Fischman v. Raytheon Mfg. Co., 2 Cir., 1951, 188 F.2d 783, involving a stockholders’ action under section 10(b) of the 1934 Act, which forbids the use of fraudulent devices in connection with the purchase and sale of securities. No remedy is expressly granted by that provision to the person aggrieved. The court, per Frank, J., held (at page 787): “Section 10(b) [of the 1934 Act], to be sure, does not explicitly authorize a civil remedy. Since, however, it does make ‘unlawful’ the conduct it describes, it creates such a remedy.” Accord: Hooper v. Mountain States Securities Corp., 5 Cir., 1960, 282 F.2d 195, 200-201; Errion v. Connell, 9 Cir., 1956, 236 F.2d 447, 453-455; Fratt v. Robinson, 9 Cir., 1953, 203 F.2d 627, 37 A.L.R. 2d 636; Slavin v. Germantown Fire Ins. Co., 3 Cir., 1949, 174 F.2d 799, 805-806; Osborne v. Mallory, D.C.S.D.N.Y.1949, 86 F.Supp. 869, 879; Kardon v. National Gypsum Co., D.C.E.D.Pa.1946, 69 F.Supp. 512; Id., D.C.E.D.Pa.1947, 73 F.Supp. 798. Another leading case is Baird v. Franklin, 2 Cir., 1944, 141 F.2d 238, certiorari denied 1944, 323 U.S. 737, 65 S.Ct. 38, 89 L.Ed. 591, interpreting section 6(b) of the 1934 Act which, as judicially construed, makes it the duty of every stock exchange to expel or discipline members for unethical conduct. No private right of action is provided for violation of this duty. In Baird v. Franklin, 2 Cir., 141 F.2d 238, at page 245, sustaining a private right of action, it was said: “The fact that the statute provides no machinery or procedure by which the individual right of action can proceed is immaterial. It is well established that members of a class for whose protection a statutory duty is created may sue for injuries resulting from its breach and that the common law will supply a remedy if the statute gives none. (Citing cases.)” Although the pertinent language of the Baird case appears in the dissenting opinion of Judge Clark, the full court agreed with this part of his holding. It has since repeatedly been cited with approval. See Goldstein v. Groesbeck, 2 Cir,, 1944, 142 F.2d 422, 427, 154 A.L.R. 1285; Slavin v. Germantown Fire Ins. Co., 3 Cir., 1949, 174 F.2d 799, 805; Fratt v. Robinson, supra, 203 F.2d at pages 631-632. The same principle has been applied to a variety of other prohibitions, such as sections 7(a), 11(d) and 17(a) of the 1934 Act and section 4(a)' (2) of the Public Utility Holding Company Act of 1935. Although none of these sections provides for a private right of action, the violation of each has been held, by necessary implication, to grant such a right to the parties for whose protection the statute was intended. Goldstein v. Groesbeck, 2 Cir., 1944, 142 F.2d 422, 425-427, 154 A.L.R. 1285, certiorari denied 1944, 323 U.S. 737, 65 S.Ct. 36, 89 L.Ed. 590; Remar v. Clayton Securities Corp., D.C.Mass.1949, 81 F.Supp. 1014, 1017; Appel v. Levine, D.C.S.D.N.Y.1948, 85 F.Supp. 240; Hawkins v. Merrill, Lynch, Pierce, Fenner & Beane, D.C.W.D.Ark.1949, 85 F.Supp. 104, 121. Section 47 of the 1940 Act was copied verbatim from section 26(b) of the Public Utility Holding Company Act of 1935, 15 U.S.C.A. § 79z(b). Both sections provide, in substance, that any stipulation waiving compliance with any provision of the statute or Commission rule shall be void; and that any contract or performance thereof violating the statute or rule shall be void. The interpretation of this provision in Goldstein v. Groesbeck, 2 Cir., 1944, 142 F.2d 422, 154 A.L.R. 1285, certiorari denied 323 U.S. 737, 65 S.Ct. 36, 89 L.Ed. 590, illuminates in depth the problem at bar. In Goldstein v. Groesbeck, supra, a minority stockholder brought a double derivative action for an accounting of profits. The gravamen of the complaint was certain contracts entered into in violation of section 4(a) (2) of the Public Utility Holding Company Act of 1935, 15 U.S.C.A. § 79d(a) (2). This section made it unlawful for an unregistered holding company to enter into service and construction contracts with any public utility company. The Court of Appeals upheld “the sufficiency of the complaint” (142 F.2d at page 425). The court, per Clark, J., said: “The present action is surely to enforce a duty created by the Act, since but for the Act the payments under the service and construction contracts would be innocuous enough; and the words ‘any liability or duty’ are clearly broad enough to include any breaches of duty causing injury or loss to private persons. See Baird v. Franklin, 2 Cir., 141 F.2d 238” (142 F.2d at page 425.) “Violation being thus established, § 26(b), 15 U.S.C.A. § 79z(b), in express terms declares the contracts void. It should follow that the operating companies are entitled to a refund, for no other result can fulfill the expressed purpose of the Act of protecting subsidiaries from the overreachings of holding companies” (at page 426.) “Defendants object that § 4(a) (2) cannot be enforced by a private party because its proscription of service contracts is made as a penalty for the failure of the holding company to register under § 5 of the Act, 15 U.S.C.A. § 79e. Electric Bond & Share Co. v. S. E. C. [2 Cir., 92 F.2d 580], supra. Since some penalties can be enforced by private parties, the label is in any event inconclusive. Life & Casualty Ins. Co. of Tennessee v. McCray, 291 U.S. 566, 574, 54 S.Ct. 482, 78 L.Ed. 987, and cases cited therein. If private parties were to be held precluded from thus relying upon the Act, on the theory that its terms constituted a penalty, it would seem to follow that the private operating companies must pay the amounts due under the contracts, even though they were declared illegal — a result hardly consonant with the policy of the legislation. Furthermore, the analogy of the Securities Exchange Act is again useful. Private enforcement of § 29(b) of that statute has been permitted, Geismar v. Bond & Goodwin, Inc. [D.C., 40 F.Supp. 876] supra, while we have recently upheld broadly the private rights of action impliedly granted by the Securities Exchange Act, Baird v. Franklin, 2 Cir., 141 F.2d 238; and cf. Charles Hughes & Co. v. S. E. C., 2 Cir., 139 F.2d 434, certiorari denied [321 U. S. 786] 64 S.Ct. 781 [88 L.Ed. 1077]. As we have pointed out in those cases, we think a denial of a private right of action to those for whose ultimate protection the legislation is intended leaves legislation highly publicized as in the public interest in fact sadly wanting, and even delusive, to that end” (at page 427). (Emphasis supplied.) In Remar v. Clayton Securities Corp., D.C.D.Mass.1949, 81 F.Supp. 1014, it was held that an investor has a cause of action against a broker who arranged loans in violation of the margin requirements under the 1934 Act. Judge Wyzanski pointed to section 27 of the 1934 Act which gives to the federal court jurisdiction over “suits in equity and actions at law brought to enforce any liability or duty created by this Act,” and concluded (at pages 1017-1018): “ * * * within the meaning of § 27, plaintiff is enforcing a liability created by the Securities and Exchange Act. To be sure, the statute created the liability by implication, not by express words. But once the liability was created, its extent was to be measured by * * * a federal rather than a state common law. (Citations omitted.) Suits to enforce a liability having such federal ancestry should be granted credentials of legitimacy in connection with this jurisdictional section of the statute.” In implying private remedies under the 1933 and 1934 Acts, Judge Leibell in Osborne v. Mallory, D.C.S.D.N.Y.1949, 86 F.Supp. 869 at pages 878-879, pointed out: “Section 22(a) of the Securities Act of 1933 * * * gives the Federal district courts jurisdiction over suits in equity and actions at law brought to enforce any liability or duty ‘created by this sub-chapter’, * * * which includes § 17. “Section 27 of the Securities Exchange Act of 1934 * * * gives a Federal district court jurisdiction over ‘violations of this chapter’, i. e. under the 1934 Act, and over violations of the Rules and Regulations issued by the Securities and Exchange Commission pursuant to the provisions of said Act. The word ‘violation’ is not limited to a criminal case; it includes also civil litigation. Grossman v. Young, D.C., 70 F.Supp. 970. “Even though there is no specific section of the 1933 Act creating liability under § 17 other than the language of § 17 itself, or in the 1934 Act in relation to § 10(b) of that Act other than the language of § 10(b) itself, nevertheless it has been held that a civil liability is implied and a remedy is available under the Acts for violations of their provisions, and that an action may be brought in the appropriate courts to enforce that liability. * * “That a violation of § 10(b) of the Securities Exchange Act of 1934 implicitly creates a civil liability for which a remedy is available in the Federal courts, has been held in the following cases: [Citations omitted.]” The Osborne case has been cited with approval in such cases as Fischman v. Raytheon Mfg. Co., 2 Cir., 1951, 188 F.2d 783, 787, and Northern Trust Co. v. Essaness Theatres Corp., D.C.N.D.Ill. 1952, 103 F.Supp. 954, 964. Summarizing this doctrinal development and application, Loss, supra, correctly states (pp. 1043, 1045): “7. Implied Liabilities “The most surprising development in the whole area of civil liabilities under the federal statutes has been the recognition in recent years of what might be termed the implied liabilities. There is good reason to believe that these may turn out to be far more significant than the express liabilities which Congress created. And, when this development in the field of remedies is combined with the changes in the substantive law of fraud and misrepresentation which the Commission and the courts are evolving under these statutes and rules, the effect on the general law governing securities transactions and relations between management and security holders is not inconsiderable. Because of the almost universal use of the mails and interstate instrumentalities in commercial transactions, the net result may well be to cut deeply into areas which have been traditionally reserved for state law in this country. “(a) The Bases of Liability “The implied liabilities under these statutes rest on two bases. One is the provision of Section 29(b) of the Exchange Act — substantially repeated in the Holding Company, Investment Company and