Ordinarily, an individual’s debts may be discharged in Chapter 7 bankruptcy under Bankruptcy Code Section 727. However, under Section 523(a)(19)(A)(i), a debt may not be discharged if it results from a violation of state or federal securities . The question in this case is whether the exception to discharge in Section 523(a)(19)1 applies when the debtor himself is not culpable for the securities violation that caused the debt.
The bankruptcy court held that the debt was subject to discharge; the district court disagreed and held that the debt was excepted from discharge in bankruptcy. The Court agreed with the bankruptcy court that the exception to discharge applies only to those who have themselves violated the securities laws.
Reversed and remanded.