back or invest it in a new company that was being formed, Intra-Management Corporation. Apart from being told that Intra-Management would be involved in real estate sales and development, Victor was given no information about the new venture. However, after being informed that Junior's father and uncles had reinvested their I.F.C. money in Intra-Management, Victor was satisfied that it was a wise move. He endorsed the back of the check which Junior and Cappello had brought with them so that the $5,000 could be applied towards purchasing Intra-Management stock for he and his brother. It is unclear whether it was a corporate or personal check which Victor endorsed. In March of 1971, Victor received in the mail certificates for 4,000 shares of Intra-Management preferred stock and 4,000 shares of Intra-Management common stock in his name, plus certificates for 1,000 shares of Intra-Management preferred stock and 1,000 shares of Intra-Management common stock in the name of Dominic Vacca. All of the certificates were dated March 1, 1971. [Exhibits P-2, P-3, P-4, P-5.]
Plaintiffs now seek rescission and the return of their investment. Passing over the question of whether this suit was brought with the dispatch necessary to entitle plaintiffs to that "radical" remedy, see Johns Hopkins University v. Hutton, 488 F.2d 912 (4th Cir. 1973), cert. denied, 416 U.S. 916, 40 L. Ed. 2d 118, 94 S. Ct. 1622, 94 S. Ct. 1623 (1974); Baumel v. Rosen, 412 F.2d 571 (4th Cir. 1969), cert. denied, 396 U.S. 1037, 90 S. Ct. 681, 24 L. Ed. 2d 681 (1970), the Court believes that the evidence presented fails to establish any intent to deceive, manipulate or defraud on the part of the DiSalvios. In Ernst & Ernst v. Hochfelder, supra, the Supreme Court held that such an intent, or "scienter," is an essential element in an action for damages under Section 10(b) of the 1934 Act and Rule 10b-5. While the Supreme Court left open the question of whether scienter is a necessary element in an action for injunctive relief under those provisions, 96 S. Ct. at 1381 n.12, we believe that the Ernst & Ernst v. Hochfelder holding applies equally to both equitable actions for rescission and actions at law for money damages. Cf. Ash v. LFE Corp., 525 F.2d 215, 220 (3d Cir. 1975); Myzel v. Fields, 386 F.2d 718, 740-742 (8th Cir. 1967), cert. denied, 390 U.S. 951, 19 L. Ed. 2d 1143, 88 S. Ct. 1043 (1968).
It is undisputed that several members of the DiSalvio family, including Senior, purchased stock in M.B.A., I.F.C. and Intra-Management. In addition, Junior's testimony is uncontested that he was never an officer of any of the corporations involved in this case and, in fact, while employed by M.B.A., that he was paid his sales commissions in that corporation's stock. In light of these facts, and in view of the long-standing, close personal relationship between these parties, the Court simply does not believe that the requisite intent to defraud existed. In light of this finding, plaintiffs cannot recover their investment from the DiSalvios under Section 10(b) of the 1934 Act or Rule 10b-5.
It is currently an open question whether a private cause of action exists under Section 17(a) of the 1933 Act. Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 734 n.6, 44 L. Ed. 2d 539, 95 S. Ct. 1917 (1975); Schultz v. Cally, 528 F.2d 470, 475 n.11 (3d Cir. 1975). Assuming, arguendo, that such a cause of action is available, we believe that recovery under that section is also precluded by the rule laid down in Ernst & Ernst v. Hochfelder, supra. The "courts have endeavored to treat the '33 and '34 Acts in pari materia and to construe them as a single comprehensive scheme of regulation." Globus v. Law Research Service, Inc., 418 F.2d 1276, 1286 (2d Cir. 1969), cert. denied, 397 U.S. 913, 25 L. Ed. 2d 93, 90 S. Ct. 913 (1970); accord, De Haas v. Empire Petroleum Co., 435 F.2d 1223, 1229 n.4 (10th Cir. 1970). We believe that, in the absence of proof of scienter, a finding of civil liability is as inappropriate under Section 17(a) of the 1933 Act as it is under Section 10(b) of the 1934 Act and Rule 10b-5. Thompson v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 401 F. Supp. 111, 114 (W.D. Okl. 1975); Larson v. Tony's Investments, Inc., 46 F.R.D. 612, 615 (M.D.Ala. 1969). This conclusion clearly follows from the fact that the language of Rule 10b-5 was derived in significant part from Section 17(a) of the 1933 Act. Ernst & Ernst v. Hochfelder, supra, 96 S. Ct. at 1390 n.32; Blue Chip Stamps v. Manor Drug Stores, supra, 421 U.S. at 767 (Blackmun, J., dissenting).
Since plaintiffs have failed to prove all of the elements necessary to make out a successful claim under the sections of the federal securities statutes upon which they rely, we are left finally to decide whether the activities of the DiSalvios constituted common law fraud. The Supreme Court of Pennsylvania has stated:
The essence of fraud is deceit intentionally and successfully practiced to induce another to part with property or with some legal right. Fraud is practiced when deception of another to his damage is brought about by a misrepresentation of fact or by silence when good faith required expression. In re Thorne's Estate, 344 Pa. 503, 25 A.2d 811, 816 (1942) (emphasis added).
Once again, intent to defraud is an essential element of the claim made by plaintiffs. As we have ruled that there is no evidence of such an intent on the part of the DiSalvios, we decline to find them liable for common law fraud.
Our decision in this case should not be interpreted as condoning the actions of the DiSalvios. The Court is sensitive to the plight of plaintiffs. However, investment in securities is an inherently risky activity and the law does not provide a remedy for every mistake in judgment made by investors. Plaintiffs were novices in this field and made the mistake of acting on the advice of personal friends, the DiSalvios, who were hardly more experienced. They may all have been equally misled by Cappello. We simply hold that, whether or not the DiSalvios were negligent in aiding and abetting a possibly fraudulent scheme, they did not intend to deceive, manipulate or defraud the Vaccas and, therefore, are not liable.
An appropriate Order will be entered.
AND NOW, TO WIT, this 14th day of June, 1976, IT IS ORDERED that:
1. Judgment is entered in favor of defendants Anthony DiSalvio and Anthony DiSalvio, Jr., and against plaintiffs.
2. Default judgment is entered in favor of plaintiffs and against defendant M.B.A. Funding Corporation in the sum of one thousand six hundred dollars ($1,600.00).
3. Default judgment is entered in favor of plaintiffs and against defendant Insider Funding Corporation for nominal damages in the sum of one dollar ($1.00).
4. Judgment is entered in favor of plaintiffs and against defendant John V. Cappello in the sum of eight thousand three hundred thirty-two dollars and thirty-six cents ($8,332.36).
LOUIS C. BECHTLE, J.