PRECEDENTIAL

  UNITED STATES COURT OF APPEALS
       FOR THE THIRD CIRCUIT
            _____________

                No. 14-4299
               _____________

       IN RE: STEVEN S. BOCCHINO,
           aka Steven Silvio Bocchino
              aka Steven Bocchino
           aka Steven S Bocchino, III
         aka Steven Silvio Bocchino, III
        aka Steven Bocchino, III, Debtor

   U.S. Securities and Exchange Commission

                      v.

             Steven S. Bocchino,
                           Appellant
             _______________

On Appeal from the United States District Court
    for the Middle District of Pennsylvania
         (D.C. Civil No. 3-14-cv-00662)
 District Judge: Honorable James M. Munley
               _______________

Submitted Pursuant to Third Circuit LAR 34.1(a)
                June 24, 2015
Before: CHAGARES, KRAUSE and VAN ANTWERPEN,
                Circuit Judges.

                  (Filed: July 23, 2015)

J. Zac Christman, Esq.
Newman, Williams, Mishkin, Corveleyn, Wolfe & Fareri
712 Monroe Street
P.O. Box 511
Stroudsburg, PA 18360
       Counsel for Appellant

Tracey Hardin, Esq.
Josephine T. Morse, Esq.
United States Securities & Exchange Commission
100 F Street N.E.
Washington, DC 20549

Patricia H. Schrage, Esq.
United States Securities & Exchange Commission
200 Vesey Street, Suite 400
New York, NY 10281
       Counsel for Appellee

                   _______________

               OPINION OF THE COURT
                    _____________


VAN ANTWERPEN, Circuit Judge.




                            2
        Steven S. Bocchino appeals the final decision of the
District Court for the Middle District of Pennsylvania
affirming     the      Bankruptcy      Court’s      order      of
nondischargeability of civil judgment debts pursuant to 11
U.S.C. § 523(a)(2)(A). Bocchino v. SEC, No. 3-14-cv-00662,

(M.D. Pa. Sept. 26, 2014). For the reasons
that follow, we will affirm the decision of the District Court.

     I.       FACTUAL B ACKGROUND AND PROCEDURAL
                          HISTORY

       Bocchino limits his appeal to two discrete legal rulings
and does not challenge the Bankruptcy Court’s or the District
Court’s factfinding.1 Therefore, the following facts are
undisputed.

        Bocchino   worked as          a stockbroker.        The
nondischargeability order at issue relates to civil judgments
against Bocchino for two private placement investments he
solicited in 1996 while affiliated with a brokerage firm. 2 The
first investment involved an entity known as Traderz
Associates Holding, Inc. (“Traderz”). Bocchino learned from
a superior that Traderz “might go public” and that the
endeavor was supported by “some commitment” from a


         (See Appellant’s Br. at 4 (“[T]here were no disputes
          1

of facts before the Bankruptcy Court or the District Court,
and all issues were decided as a matter of law.”)).
          A “private placement” is a sale of securities to a
          2

relatively small number of select investors as a way of raising
capital, as opposed to a “public issue,” whereby securities are
made available for sale on the open market.




                               3
popular fashion model. In re Bocchino, 

, 407
(Bankr. M.D. Pa. Dec. 23, 2013). Based solely on these facts,
and without any other independent investigation into the
quality of the entity, Bocchino immediately sought
investment from clients. Bocchino received over $40,000 in
commissions from Traderz sales. The second private
placement involved Fargo Holdings, Inc. (“Fargo”). The
exact source of Bocchino’s information regarding Fargo is
unclear. Bocchino claimed that he knew about Fargo from an
associate at the brokerage firm. Bocchino also claimed that he
initially learned of Fargo by meeting a day trader affiliated
with the entity. Nevertheless, Bocchino only obtained cursory
documentation about the entity before soliciting sales. He did
not conduct any independent investigation into the quality of
the investment. This lack of investigation occurred despite
Bocchino’s awareness that Fargo’s principal’s “full-time ‘job’
was law student.” In re 

. Bocchino
received $14,000 in commissions for his clients’ stock
purchases in Fargo.3

       Both Traderz and Fargo turned out to be fraudulent
ventures. The principals of each entity were criminally
convicted, and the anticipated value of the investments
vanished. In the early 2000s, the Securities and Exchange
Commission (“SEC”) brought two civil law enforcement
actions in the U.S. District Court for the Southern District of
New York against those who sold investments in the entities.
SEC v. Goldman Lender & Co. Holdings et al., 98-CV-7525

       3
         Bocchino emphasizes that he independently inquired
into Fargo’s financial health. We find this fact
inconsequential, as he did not conduct this investigation until
after he received payments from clients.




                              4
(JGK) (“Goldman Action”) and SEC v. Nnebe et al., 01-CV-
5247 (KMW) (“Nnebe Action”). The Goldman Action alleged
that Bocchino had violated Section 17(a) of the Securities Act
and Sections 10(b) and 15(a) of the Securities Exchange Act
for inducing investors via high pressure sales tactics and
material misrepresentations. The court entered a default
judgment ordering Bocchino to pay $35,090.00 in
disgorgement, $14,779.70 in prejudgment interest, and
$35,090.00 in civil penalties. Similarly, the Nnebe Action
alleged Bocchino violated Sections 5(a), 5(c), and 17(a) of the
Securities Act and Sections 10(b), 15(a), and Rule 10b-5 of
the Securities Exchange Act. The court entered a default
judgment consisting of $14,800.00 in disgorgement,
$4,207.85 in prejudgment interest, and $75,000.00 in civil
penalties. In total, Bocchino was liable for $178,967.55.

       After Bocchino filed for Chapter 13 bankruptcy
protection in 2009, the SEC petitioned the Bankruptcy Court
for a judgment that the Goldman Action and Nnebe Action
judgments were nondischargeable. The SEC argued that the
funds were “obtained by . . . false pretenses, a false
representation, or actual fraud” under 11 U.S.C.
§ 523(a)(2)(A). After post-trial briefing, the Bankruptcy
Court ordered the civil penalties discharged under 11 U.S.C.
§ 1328(a)(2), but retained the remaining $68,877.55 as
nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A).

       The Bankruptcy Court recognized that Bocchino
believed that his statements to prospective investors were
true. Accordingly, it found that “Bocchino did not knowingly
make any false statements.” In re 

.
However, the Bankruptcy Court continued its inquiry into the
application of § 523(a)(2)(A). The Bankruptcy Court relied




                              5
upon In re White, 128 F. App’x 994, 998–99 (4th Cir. 2005)
(per curiam) (unpublished), for the proposition that the
scienter requirement of § 523(a)(2)(A) may be satisfied by
grossly reckless behavior. The Bankruptcy Court also
reasoned that stockbrokers are akin to fiduciaries and the
Restatement (Second) of Torts generally supports a finding of
fraudulent misrepresentation for a reckless disregard for the
truth. The Bankruptcy Court further noted that the Supreme
Court found that grossly reckless conduct satisfied the
scienter requirement for defalcation under § 523(a)(4) of the
Bankruptcy Act. Bullock v. BankChampaign, N.A., 

, 1757 (2013). The Bankruptcy Court described
Bocchino’s actions as “egregious” and “grossly reckless” in
pursuit of his “own greedy purpose, i.e., commissions.” In re

. “Not only was [Bocchino]
negligent, but extremely reckless. As an experienced
stockbroker, he knew, or should have known, that an
independent investigation into the quality of the product he
was selling was imperative.” 

He
challenged (1) the Court’s application of the grossly reckless
standard to satisfy the scienter requirement of § 523(a)(2)(A),
and (2) the Court’s finding that his actions were the
proximate cause of his clients’ losses.

       On appeal, the District Court affirmed the Bankruptcy
Court in its entirety. First, the District Court found that
holding grossly reckless behavior nondischargeable under
§ 523(a)(2)(A) accords with the overall policy goal of the
Bankruptcy Act—to limit the opportunity of a fresh start to
the “honest but unfortunate debtor.” Bocchino, 

, at *2 (quoting Grogan v. Garner, 

,
286–87 (1991)). The District Court also found Bullock,
related Third Circuit cases, and In re White persuasive. In




                              6
consideration of Bocchino’s proximate cause claim, the Court
applied general tort law principles to conclude that
Bocchino’s clients had reasonably relied on his statements as
their fiduciary, the investments failed, and the clients suffered
losses. The Court reasoned that both the reckless and criminal
activities of the principals were substantial factors in the
clients’ losses, but because the failure of the entities was
reasonably foreseeable upon the exercise of due diligence, the
crimes were not superseding causes of the losses.

                     II.     DISCUSSION 4
       1.     Standard of Review

       “Because the District Court sat as an appellate court,
reviewing an order of the Bankruptcy Court, our review of the
District Court’s determinations is plenary.” In re Heritage
Highgate, Inc., 

, 139 (3d Cir. 2012) (quoting In
re Rashid, 

, 205 (3d Cir. 2000)). Therefore, we
review the Bankruptcy Court’s legal determinations de novo
and review its factual determinations for clear error. 

       4
         The Bankruptcy Court had jurisdiction pursuant to 28
U.S.C. § 1334. The District Court had jurisdiction to review
the final order of the Bankruptcy Court pursuant to 28 U.S.C.
§ 158(a). We have jurisdiction to review the final order of the
District Court pursuant to 28 U.S.C. § 158(d) and 28 U.S.C.
§ 1291.




                               7
       The Bankruptcy Act provides a means for the
insolvent to start anew. 

. The Act
limits this opportunity to those debtors who are “honest but
unfortunate.” 

The Act accomplishes this goal
by requiring a creditor seeking to prevent a discharge to prove
by a preponderance of the evidence that its claim meets one
of the statutory exceptions to discharge. 

The
exceptions are strictly construed. 

Section
523(a)(2)(A) of the Act states:

           A discharge under section 727, 1141,
           1228(a), 1228(b) or 1328(b) of this title does
           not discharge an individual debtor from any
           debt . . . (2) for money, property, services, or
           an extension, renewal, or refinancing of
           credit, to the extent obtained by—(A) false
           pretenses, a false representation, or actual
           fraud, other than a statement respecting the
           debtor’s or an insider’s financial condition .
           ...

11 U.S.C. § 523(a)(2)(A). The SEC argues that Bocchino’s
gross recklessness satisfies the statute’s requisite knowledge
and intent to deceive. Bocchino responds that the statute
requires proof of actual intent to defraud. 5 Though we


       5
        Interestingly, Bocchino concedes that recklessness
may establish the requisite scienter for § 523(a)(2)(A). (See
Appellant’s Br. at 7). Bocchino also admits that his conduct
was reckless. (Id.). Nevertheless, Bocchino concludes that the
Bankruptcy Court did not find the requisite scienter because it
concluded that Bocchino did not knowingly make any false
statements. (Id.). This argument does not comport with the




                                8
implicitly approved of the SEC’s position in our
consideration of In re Cohen, 

(Bankr. D.N.J.
1994) (“Cohen I”), aff’d, 

, 604 (D.N.J. 1996)
(“Cohen II”), aff’d, In re Cohen, 

(3d Cir. 1997)
(“Cohen III”), aff’d, 

(1998), we did not dedicate
any substantial treatment to the issue. Therefore, the scienter
requirement of § 523(a)(2)(A) remains, largely, an issue of
first impression. We conclude that gross recklessness satisfies
the scienter requirement of § 523(a)(2)(A).

       First, we look to this Circuit’s precedent. In Cohen III,
we reviewed a district court conclusion that a defendant’s
misrepresentations about the legal amount of rent that could
be charged for an apartment satisfied § 523(a)(2)(A)’s
scienter requirement. The petitioner, though well aware of
landlord-tenant laws favorable to him, claimed ignorance of
rent control provisions in a systematic effort to overcharge
renters. Cohen 

. The district court
interpreted § 523(a)(2)(A) to require that:

Bankruptcy Court or District Court holdings. The Bankruptcy
Court explicitly stated that Bocchino’s conduct was
“extremely reckless” and, therefore, “the SEC has met its
burden of establishing the nondischargeability of sums
assessed . . . .” In re 

. The District
Court also identified the incoherence of Bocchino’s
argument. Bocchino, 

at *3 (“Though
appellant acknowledges at the outset that ‘an intent to deceive
may be found upon a finding of recklessness,’ he, somewhat
confusingly, argues that ‘actual wrongful intent to deceive’ is
also required. Both statements, however, cannot be true . . .
.”). Therefore, we interpret Bocchino’s argument to be that
§ 523(a)(2)(A) requires actual intent to defraud.




                               9
          (1) the debtor obtained money, property or
          services        through        a       material
          misrepresentation; (2) the debtor, at the
          time, knew the representation was false or
          made with gross recklessness as to its truth;
          (3) the debtor intended to deceive the
          creditor; (4) the creditor reasonably relied on
          the debtor's false representations; and (5) the
          creditor sustained a loss and damages as a
          proximate result of the debtor's materially
          false representations.

Cohen 

(emphasis added) (quoting In re
Poskanzer, 

, 999 (Bankr. D.N.J. 1992) (internal
quotation marks omitted). On appeal, we approved of this
formulation:

          We have carefully considered both the facts
          and the law and we find no error in the
          district court’s conclusion that Cohen
          committed fraud within the meaning of 11
          U.S.C. § 523(a)(2)(A) . . . . [T]he district
          court applied the correct principles of law . .
          . . [W]e affirm without discussion the
          district court’s order affirming the
          bankruptcy judge’s findings of fraud under
          [] the bankruptcy code.

Cohen 

.

       Section 523(a)(2)(A) does not explicitly state what
level of reliance, materiality, or intentionality is required.
Field v. Mans, 

, 68 (1995). The language of the




                              10
Section, however, has only changed slightly through the
Bankruptcy Act’s amendments. 

The Supreme Court
has stated that this relatively slow evolution instructs us that
the terms “are common-law terms, and . . . they imply
elements that the common law has defined them to include.”

The fact that Congress did not enumerate
specific elements does not negate its intent to import their
common law significance. 

look to the
Restatement (Second) of Torts for guidance. Id.; see also,
e.g., In re Biondo, 

, 134 (4th Cir. 1999) (citing
Restatement (Second) of Torts § 525). As the Restatement
describes the scienter requirement:

           A misrepresentation is fraudulent if the
           maker (a) knows or believes that the matter
           is not as he represents it to be, (b) does not
           have the confidence in the accuracy of his
           representation that he states or implies, or
           (c) knows that he does not have the basis for
           his representation that he states or implies.

Restatement (Second) of Torts § 526. Absent statutory
restrictions, we have maintained that acting with a reckless
disregard for the truth establishes scienter for securities fraud.
McLean v. Alexander, 

, 1197 (3d Cir. 1979)
(superseded by statute); see also Institutional Investors Group
v. Avaya, Inc., 

, 267 (3d Cir. 2009) (noting
heightened pleading standard of the Private Securities
Litigation Reform Act may still be met with sufficient
circumstantial evidence of reckless behavior). Allowing gross
recklessness to satisfy the scienter requirement would also
accord with other circuits who have considered the issue. See
In re Rembert, 

, 280 (6th Cir. 1998) (requiring




                               11
proof that “the debtor obtained money through a material
misrepresentation that, at the time, the debtor knew was false
or made with gross recklessness as to its truth”); Mayer v.
Spanel Int’l, Ltd., 

, 673–75 (7th Cir. 1995) (“[A]
creditor must prove that the debtor obtained the money
through representations which the debtor either knew to be
false or made with such reckless disregard for the truth as to
constitute willful misrepresentation.”); In re White, 128 F.
App’x at 998–99 (4th Cir. 2005) (“A showing of reckless
indifference to the truth is sufficient to demonstrate the
requisite intent to deceive.”). 6

       We also draw support from the Supreme Court’s
treatment of a related Bankruptcy Act provision. In Bullock v.
BankChampaign, N.A., the Court interpreted § 523(a)(4) so as
to include a prohibition on discharge for defalcation
committed by gross recklessness. 

, 1759
(2013). Section 523(a)(4) prohibits discharge for debts
obtained through “fraud or defalcation while acting in a
fiduciary capacity, embezzlement, or larceny.” 11 U.S.C.
§ 523(a)(4). On account of the term’s kinship with other
statutory terms, including fraud, the Court reasoned that the
culpable state of mind requirement was one “involving
knowledge of, or gross recklessness in respect to, the
improper nature of the relevant fiduciary behavior.” 

. In so holding, Bullock also found support

      6
        District courts within this Circuit have also adopted
this position. See In re Purington, No. 12-4135, 

, at *2–3 (D.N.J. July 9, 2013); In re Pandolfelli,
Nos. 11-5179, 11-5231, 11-7031, 

, at *7
(D.N.J. Feb. 15, 2012); In re Reynolds, 

, 200
(D.N.J. Feb. 5, 1996).




                             12
for the scienter requirements from the model penal code that
imposes liability for willful blindness. 

Bocchino has not presented a compelling argument why the
Supreme Court’s reasoning for § 523(a)(4) should not apply
with similar force to § 523(a)(2)(A).

        We have also applied similar reasoning in other areas
of the Bankruptcy Code. In In re Cohn, 

(3d Cir.
1995), we examined a similar question with respect to
§ 523(a)(2)(B). That Section renders money obtained by
materially false written statements nondischargeable. 11
U.S.C. § 523(a)(2)(B). Though the statute contains an express
“intent to deceive” requirement unlike § 523(a)(2)(A), we
allowed a claimant to prove intent to deceive by showing, by
a totality of the circumstances, reckless indifference or
reckless disregard of the accuracy of information. In re 

. Similarly, in In re Docteroff, we noted that
“[b]ankruptcy courts have overwhelmingly held that a
debtor’s silence regarding material fact can constitute a false
representation actionable under [S]ection 523(a)(2)(A).” 

, 216 (3d Cir. 1997) (quoting In re Van Horne, 

, 1288 (8th Cir. 1987) (collecting cases)). We echo
Bullock by noting that uniformity in the federal law is
important, and we have not been presented with a strong
argument why the statute should be read differently than the
related provisions of the Act. To read § 523(a)(2)(A) so
restrictively as to sanction Bocchino’s gross recklessness
would be at odds with the general principles of the Act.

. A debtor will rarely admit to
intentional deception, thus intent is most often inferred from
the totality of the circumstances. Palmacci v. Umpierrez, 

, 786 (1st Cir. 1997).




                              13
      Therefore, we affirm the District Court’s holding that
§ 523(a)(2)(A)’s scienter requirement was satisfied by
Bocchino’s gross recklessness.

      3.     Proximate Cause

        We have little trouble finding that Bocchino’s gross
negligence was also the proximate cause of his clients’ losses.
Proximate cause is a term of art, demanding sufficient
connection between the injury and the conduct alleged.
Holmes v. Securities Investor Protection Corp., 

,
268 (1992). “At bottom, the notion of proximate cause
reflects ‘ideas of what justice demands, or of what is
administratively possible and convenient.’” 

Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and
Keeton on Law of Torts § 41, p. 264 (5th ed. 1984)).
Proximate cause includes both cause-in-fact and legal
causation. Fedorczyk v. Caribbean Cruise Lines, Ltd., 

, 73 (3d Cir. 1996). Bocchino does not challenge that his
actions were the cause-in-fact of his clients’ injuries. Legal
cause is established where the loss was reasonably expected
to result from reliance upon the misrepresentation.
Restatement (Second) of Torts § 548A. There is no serious
question on the facts that Bocchino failed to investigate the
private placements before soliciting sales or that Bocchino’s
clients would not have purchased the fraudulent stock absent
Bocchino’s grossly reckless misrepresentations. A reasonable
review of the fundamentals of the ventures would have
revealed that the placements were worthless. Therefore,
proximate cause has been established.

       Furthermore, we agree with the District Court that the
actions of the principals of Traderz and Fargo were not a




                              14
superseding cause. Bocchino, 

, at *8 (citing
Staub v. Proctor Hosp., 

, 1192 (2011)). A
superseding cause is “a later cause of independent origin that
was not foreseeable.” Exxon Co., U.S.A., v. Sofec, Inc., 

, 837 (1996); Bouriez v. Carnegie Mellon Univ., 

, 771–72 (3d Cir. 2009) (quoting Restatement
(Second) of Torts § 443). Where an actor’s conduct is a
substantial factor in bringing about harm, an intervening force
created by the actor’s negligent conduct will not suffice to
break legal cause. Restatement (Second) of Torts § 443. We
find that the collapse of the private placements was neither
abnormal nor extraordinary given Bocchino’s lack of due
diligence. Given the woeful state of the entities when
Bocchino solicited the investments, we find that the losses
were manifestly foreseeable. Moreover, not only has
Bocchino failed to challenge any of the factfinding below, we
note that nothing in the record indicates that the District Court
committed clear error in concluding that the investments were
destined for failure.

                     III.   CONCLUSION

       For the foregoing reasons, we affirm the District
Court’s order affirming the Bankruptcy Court’s order of
nondischargeability.




                               15