Barbara R. SCHREIBER, Petitioner v. BURLINGTON NORTHERN, INC., et al.

We granted certiorari to resolve a conflict in the Circuits over whether misrepresentation or nondisclosure is a necessary element of a violation of § 14(e) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(e).

* On December 21, 1982, Burlington Northern, Inc., made a hostile tender offer for El Paso Gas Co. Through a wholly owned subsidiary, Burlington proposed to purchase 25.1 million El Paso shares at $24 per share. Burlington reserved the right to terminate the offer if any of several specified events occurred. El Paso management initially opposed the takeover, but its shareholders responded favorably, fully subscribing the offer by the December 30, 1982, deadline.

Burlington did not accept those tendered shares; instead, after negotiations with El Paso management, Burlington announced on January 10, 1983, the terms of a new and friendly takeover agreement. Pursuant to the new agreement, Burlington undertook, inter alia, to (1) rescind the December tender offer, (2) purchase 4,166,667 shares from El Paso at $24 per share, (3) substitute a new tender offer for only 21 million shares at $24 per share, (4) provide procedural protections against a squeeze-out merger1 of the remaining El Paso shareholders, and (5) recognize "golden parachute"2 contracts between El Paso and four of its senior officers. By February 8, more than 40 million shares were tendered in response to Burlington's January offer, and the takeover was completed.

The rescission of the first tender offer caused a diminished payment to those shareholders who had tendered during the first offer. The January offer was greatly oversubscribed and consequently those shareholders who retendered were subject to substantial proration. Petitioner Barbara Schreiber filed suit on behalf of herself and similarly situated shareholders, alleging that Burlington, El Paso, and members of El Paso's board of directors violated § 14(e)'s prohibition of "fraudulent, deceptive, or manipulative acts or practices . . . in connection with any tender offer." 15 U.S.C. § 78n(e). She claimed that Burlington's withdrawal of the December tender offer coupled with the substitution of the January tender offer was a "manipulative" distortion of the market for El Paso stock. Schreiber also alleged that Burlington violated § 14(e) by failing the January offer Burlington failed to disclose the "golden parachutes" offered to four of El Paso's managers. She claims that this January nondisclosure was a deceptive act forbidden by § 14(e).

The District Court dismissed the suit for failure to state a claim. 568 F.Supp. 197 (Del.1983). The District Court reasoned that the alleged manipulation did not involve a misrepresentation, and so did not violate § 14(e). The District Court relied on the fact that in cases involving alleged violations of § 10(b) of the Securities Exchange Act, 15 U.S.C. § 78j(b)), this Court has required misrepresentation for there to be a "manipulative" violation of the section. 568 F.Supp., at 202.

The Court of Appeals for the Third Circuit affirmed. 731 F.2d 163 (1984). The Court of Appeals held that the acts alleged did not violate the Williams Act, because "§ 14(e) was not intended to create a federal cause of action for all harms suffered because of the proffering or the withdrawal of tender offers." Id., at 165. The Court of Appeals reasoned that § 14(e) was "enacted principally as a disclosure statute, designed to insure that fully-informed investors could intelligently decide how to respond to a tender offer." Id., at 165-166. It concluded that the "arguable breach of contract" alleged by petitioner was not a "manipulative act" under § 14(e).

We granted certiorari to resolve the conflict,3 469 U.S. 815, 105 S.Ct. 81, 83 L.Ed.2d 29 (1984). We affirm.

We are asked in this case to interpret § 14(e) of the Securities Exchange Act, 82 Stat. 457, as amended, 15 U.S.C. § 78n(e). The starting point is the language of the statute. Section 14(e) provides:

"It shall be unlawful for any person to make any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or to engage in any fraudulent, deceptive, or manipulative acts or practices, in connection with any tender offer or request or invitation for tenders, or any solicitation of security holders in opposition to or in favor of any such offer, request, or invitation. The Commission shall, for the purposes of this subsection, by rules and regulations define, and prescribe means reasonably designed to prevent, such acts and practices as are fraudulent, deceptive, or manipulative."

Petitioner relies on a construction of the phrase, "fraudulent, deceptive, or manipulative acts or practices." Petitioner reads the phrase "fraudulent, deceptive, or manipulative acts or practices" to include acts which, although fully disclosed, "artificially" affect the price of the takeover target's stock. Petitioner's interpretation relies on the belief that § 14(e) is directed at purposes broader than providing full and true information to investors.

Petitioner's reading of the term "manipulative" conflicts with the normal meaning of the term. We have held in the context of an alleged violation of § 10(b) of the Securities Exchange Act:

"Use of the word 'manipulative' is especially significant. It is and was virtually a term of art when used in connection with the securities markets. It connotes intentional or willful conduct designed to deceive or defraud investors by controlling or artificially affecting the price of securities." Ernst & Ernst v. Hochfelder, 425 U.S. 185, 199, 96 S.Ct. 1375, 1384, 47 L.Ed.2d 668 (1976) (emphasis added).

Other cases interpreting the term reflect its use as a general term comprising a range of misleading practices:

"The term refers generally to practices, such as wash sales, matched orders, or rigged prices, that are intended to mislead investors by artificially affecting market activity. . . . Section 10(b)'s general prohibition of practices deemed by the SEC to be 'manipulative'—in this technical sense of artificially affecting market activity in order to mislead investors—is fully consistent with the fundamental purpose of the 1934 Act ' "to substitute a philosophy of full disclosure for the philosophy of caveat emptor. . . ." ' . . . Indeed, nondisclosure is usually essential to the success of a manipulative scheme. . . . No doubt Congress meant to prohibit the full range of ingenious devices that might be used to manipulate securities prices. But we do not think it would have chosen this 'term of art' if it had meant to bring within the scope of § 10(b) instances of corporate mismanagement such as this, in which the essence of the complaint is that shareholders were treated unfairly by a fiduciary." Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 476-477, 97 S.Ct. 1292, 1302-1303, 51 L.Ed.2d 480 (1977).

The meaning the Court has given the term "manipulative" is consistent with the use of the term at common law,4 and with its traditional dictionary definition.5

She argues, however, that the term "manipulative" takes on a meaning in § 14(e) that is different from the meaning it has in § 10(b). Petitioner claims that the use of the disjunctive "or" in § 14(e) implies that acts need not be deceptive or fraudulent to be manipulative. But Congress used the phrase "manipulative or deceptive" in § 10(b) as well, and we have interpreted "manipulative" in that context to require misrepresentation.6 Moreover, it is a " 'familiar principle of statutory construction that words grouped in a list should be given related meaning.' " Securities Industry Assn. v. Board of Governors, FRS, 468 U.S. 207, 218, 104 S.Ct. 3003, 3010, 82 L.Ed.2d 158 (1984). All three species of misconduct, i.e., "fraudulent, deceptive, or manipulative," listed by Congress are directed at failures to disclose. The use of the term "manipulative" provides emphasis and guidance to those who must determine which types of acts are reached by the statute; it does not suggest a deviation from the section's facial and primary concern with disclosure or congressional concern with disclosure which is the core of the Act.

Our conclusion that "manipulative" acts under § 14(e) require misrepresentation or nondisclosure is buttressed by the purpose and legislative history of the provision. Section 14(e) was originally added to the Securities Exchange Act as part of the Williams Act, 82 Stat. 457. "The purpose of the Williams Act is to insure that public shareholders who are confronted by a cash tender offer for their stock will not be required to respond without adequate information." Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 58, 95 S.Ct. 2069, 2075, 45 L.Ed.2d 12 (1975).7

It is clear that Congress relied primarily on disclosure to implement the purpose of the Williams Act. Senator Williams, the bill's Senate sponsor, stated in the debate:

"Today, the public shareholder in deciding whether to accept or reject a tender offer possesses limited information. No matter what he does, he acts without adequate knowledge to enable him to decide rationally what is the best course of action. This is precisely the dilemma which our securities laws are designed to prevent." 113 Cong.Rec. 24664 (1967).

The expressed legislative intent was to preserve a neutral setting in which the contenders could fully present their arguments.8 The Senate sponsor went on to say:

"We have taken extreme care to avoid tipping the scales either in favor of management or in favor of the person making the takeover bids. S. 510 is designed solely to require full and fair disclosure for the benefit of investors. The bill will at the same time provide the offeror and management equal opportunity to present their case." Ibid.

To implement this objective, the Williams Act added §§ 13(d), 13(e), 14(d), 14(e), and 14(f) to the Securities Exchange Act. Some relate to disclosure; §§ 13(d), 14(d), and 14(f) all add specific registration and disclosure provisions. Others—§§ 13(e) and 14(d)—require or prohibit certain acts so that investors will possess additional time within which to take advantage of the disclosed information.9

Section 14(e) adds a "broad antifraud prohibition," Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 24, 97 S.Ct. 926, 940, 51 L.Ed.2d 124 (1977), modeled on the antifraud provisions of § 10(b) of the Act and Rule 10b-5, 17 CFR § 240.10b-5 (1984).10 It supplements the more precise disclosure provisions found elsewhere in the Williams Act, while requiring disclosure more explicitly addressed to the tender offer context than that required by § 10(b).

While legislative history specifically concerning § 14(e) is sparse, the House and Senate Reports discuss the role of § 14(e). Describing § 14(e) as regulating "fraudulent transactions," and stating the thrust of the section:

"This provision would affirm the fact that persons engaged in making or opposing tender offers or otherwise seeking to influence the decision of investors or the outcome of the tender offer are under an obligation to make full disclosure of material information to those with whom they deal." H.R.Rep. No. 1711, 90th Cong., 2d Sess., 11 (1968), U.S.Code Cong. & Admin.News 1968, pp. 2811, 2821 (emphasis added); S.Rep. No. 550, 90th Cong., 1st Sess., 11 (1967) (emphasis added).

Nowhere in the legislative history is there the slightest suggestion that § 14(e) serves any purpose other than disclosure,11 or that the term "manipulative" should be read as an invitation to the courts to oversee the substantive fairness of tender offers; the quality of any offer is a matter for the marketplace.

To adopt the reading of the term "manipulative" urged by petitioner would not only be unwarranted in light of the legislative purpose but would be at odds with it. Inviting judges to read the term "manipulative" with their own sense of what constitutes "unfair" or "artificial" conduct would inject uncertainty into the tender offer process. An essential piece of information—whether the court would deem the fully disclosed actions of one side or the other to be "manipulative"—would not be available until after the tender offer had closed. This uncertainty would directly contradict the expressed congressional desire to give investors full information.

Congress' consistent emphasis on disclosure persuades us that it intended takeover contests to be addressed to shareholders. In pursuit of this goal, Congress, consistent with the core mechanism of the Securities Exchange Act, created sweeping disclosure requirements and narrow substantive safeguards. The same Congress that placed such emphasis on shareholder choice would not at the same time have required judges to oversee tender offers for substantive fairness. It is even less likely that a Congress implementing that intention would express it only through the use of a single word placed in the middle of a provision otherwise devoted to disclosure.

We hold that the term "manipulative" as used in § 14(e) requires misrepresentation or nondisclosure. It connotes "conduct designed to deceive or defraud investors by controlling or artificially affecting the price of securities." Ernst & Ernst v. Hochfelder, 425 U.S., at 199, 96 S.Ct., at 1384. Without misrepresentation or nondisclosure, § 14(e) has not been violated.

Applying that definition to this case, we hold that the actions of respondents were not manipulative. The amended complaint fails to allege that the cancellation of the first tender offer was accompanied by any misrepresentation, nondisclosure, or deception. The District Court correctly found: "All activity of the defendants that could have conceivably affected the price of El Paso shares was done openly." 568 F.Supp., at 203.

Petitioner also alleges that El Paso management and Burlington entered into certain undisclosed and deceptive agreements during the making of the second tender offer. The substance of the allegations is that, in return for certain undisclosed benefits, El Paso managers agreed to support the second tender offer. But both courts noted that petitioner's complaint seeks only redress for injuries related to the cancellation of the first tender offer. Since the deceptive and misleading acts alleged by petitioner all occurred with reference to the making of the second tender offer—when the injuries suffered by petitioner had already been sustained—these acts bear no possible causal relationship to petitioner's alleged injuries. The Court of Appeals dealt correctly with this claim.

Affirmed.

Justice POWELL took no part in the decision of this case.

Justice O'CONNOR took no part in the consideration or decision of this case.