Harris v. TD Ameritrade: Private Relief for Consumers not Found in SEC Rules

In Harris v. TD Ameritrade, Inc. No. 15-5220 (6th Cir. Oct. 8, 2015), the United States Court of Appeals for the Sixth Circuit affirmed the district court’s grant of TD Ameritrade’s (“TD”) motion for dismissal. The court found that the Plaintiffs, Elsie, Muriel, and David Harris, did not have a private right of action under 17 C.F.R. § 240.15c3-3 (“SEC Rule”) and Nebraska’s Uniform Commercial Code, Neb. Rev. Stat. U.C.C.  § 8-508 (“UCC”). 

According to the allegations, the Plaintiffs in 2005 purchased thousands of shares in Bancorp International Group via TD brokers. TD used the Depository Trust & Clearing Corporation (“DT&C”) to hold the Plaintiffs’ securities. In 2011, the Plaintiffs asked TD to provide a physical certificate signifying the Plaintiffs’ ownership. TD denied this request, citing a global lock by DT&C on all Bancorp International stock.  “Depository Trust had imposed the lock because someone had fraudulently created hundreds of millions of invalid shares of Bancorp International stock.” 

The Plaintiffs filed suit seeking to enjoin TD and require the broker to convert the shares.  TD removed to the United States District Court of Eastern Tennessee.  The District Court granted TD’s 12(b)(6) motion for dismissal on January 5, 2015, available here. The Plaintiffs appealed.  On appeal, the Sixth Circuit examined the claim under Rule 15c3-3 and the Nebraska UCC.  

Rule 15c3-3 provides “absolute right . . . to receive . . . following demand made on the broker or dealer, the physical delivery of certificates for . . . [f]ully-paid securities to which he is entitled.” 17 C.F.R. § 240.15c3-3(l).   The court, however, concluded that the rule did not create a private right of action for the consumer.  Nor would the court agree to use its equitable authority to create such a right.  

With respect to the UCC, plaintiffs pointed to a provision requiring that “[a] securities intermediary shall act at the direction of an entitlement holder to change a security entitlement into another available form of holding for which the entitlement holder is eligible.” The court noted that plaintiffs ran run “into the same problem that blocked their path with respect to the SEC Rule.  The court concluded that Nebraska had not created a private right of action for the relevant provisions.  “The Nebraska legislature created private rights of action when it wanted to, and for reasons of its own did not create one here.” 

The court, however, reasoned that plaintiffs had other avenues of recourse. 

  • They may ask the SEC or a state agency to enforce the federal or state law as the case may be against TD Ameritrade. “The initiation of a proceeding before a regulatory commission” may be “the best remedy available,” Anderson § 8-504:14, for violation of the duties imposed by the SEC Rule or the Commercial Code. For all we know, a non-preempted state common-law right of action may exist in circumstances like these.

For the above reasons, the court affirmed the district court’s dismissal without prejudice.


The primary materials for this case may be found on the DU Corporate Governance website

Renee Himes