(dissenting):
I must respectfully dissent.
The majority holds a registered representative (Stott) and his employer (BEDCO) liable under § 10(b) and Rule 10b-5 to their customer (Rolf) for losses suffered by the customer upon purchases and sales of securities executed at the direction of Rolf’s own independent investment adviser (Ya-mada) pursuant to written discretionary authority from Rolf instructing Stott and BEDCO to follow Yamada’s orders. This result is achieved on the grounds that (1) the investment advisor (Yamada) was committing various frauds on the customer (Rolf), and (2) the broker (Stott), although he knew nothing of the frauds, “aided and abetted” Yamada’s conversion of Rolf’s account to unsuitable securities by “holding the hand” of Rolf pursuant to an oral agreement to “look after” Rolf’s account and by assuring him of Yamada’s competence as an investment counsel.
The majority views Yamada’s investment of the account in unsuitable securities as fraud in and of itself and Stott’s state of mind as recklessness amounting to a deliberate intent to deceive. All of this is too much for me to accept. The majority not only patches together watered-down notions of fraud and scienter in arriving at a result indistinguishable in any significant respect from that reversed by the Supreme Court in Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976), but also overlooks findings below and undisputed evidence that foreclose Rule 10b-5 liability.
With regard to the “fraud” by Yamada that Stott is held to have aided and abetted, Judge Pierce found, and the majority here seems to agree, that “Stott did not know of the direct frauds which Yamada was perpetrating on Rolf” — such as the investment adviser’s manipulation of the public market price of certain securities obtained for Rolf’s account and the use of the purchasing power of that account to make purchases of securities that might improve the price for others. Nor is there any basis for a finding that Stott shut his eyes to any such manipulation or use of Rolf’s account to help others. Indeed, it is undisputed that at all pertinent times Yamada’s reputation as an investment adviser was excellent and his successful accomplishments in the trade were well known. Even on the majority’s “aiding and abetting” theory, therefore, Stott could not be held responsible for Ya-mada’s manipulations, since they were not known to Stott and would not have been readily apparent upon exercise of due diligence, including compliance with New York Stock Exchange Rule 405 (“know your customer” rule).
Because even the majority concedes that “Stott was ignorant” of Yamada’s “stock manipulations,” it becomes important to determine what was the fraud “aided and abetted” by Stott through some “reckless disregard” on his part. The majority opin*51ion, making precious little mention of any frauds committed by Yamada, fails completely to describe or analyze the specific fraud or frauds that were furthered by Stott other than to suggest that they were “Yamada’s investment decisions” and his conversion of Dr. Rolf’s portfolio into securities that were highly speculative and of very low quality compared with the type of securities that had been there when the account had been managed directly by Mr. Stirling of BEDCO. What the district court labelled “tantamount to fraud” — Yamada’s investment of Rolf’s account in unsuitable securities, so-called “high fliers,” “junk,” or “low quality” issues — is characterized by the majority in conclusory fashion as part of “a more exhaustive and all-encompassing web of fraud.” The majority’s forbidding label cannot alter the fact that, when this case is stripped of the brooding omnipresence of Yamada’s flagrant manipulations as it must be, nothing remains but an unfocused allegation that Stott lulled Rolf into acquiescence in Yamada’s investment of his account in unsuitable securities. To hold that he thereby aided and abetted a Rule 10b-5 “fraud” is to confuse the common law duties of fiduciaries or accountants, see, e. g., Ultramares Corp. v. Touche, 255 N.Y. 170, 190, 174 N.E. 441, 449 (1931), with the limited prohibitions of § 10(b) and Rule 10b-5 against the use of any “manipulative or deceptive device or contrivance” in the purchase or sale of securities.
Even assuming arguendo that the investment of a customer’s funds in unsuitable securities could on occasion rise to the level of Rule 10b-5 fraud, the majority errs in concluding that Stott’s conduct, principally his assurances regarding Yamada’s competency as investment counsel, coupled with Stott’s personal belief that some of the investments were “junk,” establishes recklessness equivalent to an intentional and deliberate participation in or aiding and abetting of such “fraud.” In my view this determination violates fundamental principles established by the Supreme Court in Ernst & Ernst v. Hochfelder, supra, and stems from an erroneous concept of “recklessness” or “reckless disregard” of material facts.
In Hochfelder the Court reversed a decision of the Seventh Circuit which had held “that one who breaches a duty of inquiry and disclosure owed another is liable in damages for aiding and abetting a third party’s violation of Rule 10b-5 if the fraud would have been discovered or prevented but for the breach. 503 F.2d 1100 (1974).” 425 U.S. at 191, 96 S.Ct. at 1380 (emphasis added). The Supreme Court held that proof of scienter, i. e., an “intent to deceive, manipulate or defraud,” was essential and that this element was not satisfied by proof of negligence or breach of a duty to inquire. It left open the “question whether, in some circumstances, reckless behavior” might be treated as the equivalent of scienter, 425 U.S. at 194 n. 12, 96 S.Ct. at 1381.
While Hochfelder did not clarify entirely the meaning of scienter, it did make clear that the failure of a fiduciary or accountant to fulfill a “common-law and statutory duty of inquiry,” 425 U.S. at 192, 96 S.Ct. at 1380, which would reveal fraud on someone else’s part, is not without more the equivalent of scienter as defined by the Court. Since Hochfelder we have reiterated that
“ . . . before [a party] can be held liable as an aider and abetter, there must be a showing that [such a party]: (a) knew of the investment adviser-client relationship; (b) had knowledge of the fraud; and (c) acted in concert with the investment adviser. Cf. Ernst & Ernst v. Hochfelder, 425 U.S. 185 [96 S.Ct. 1375, 47 L.Ed.2d 668] (1976).” Abrahamson v. Fleschner, 568 F.2d 862, at 871-872 n. 16 (2d Cir. 1977).
See also Hirsch v. du Pont, 553 F.2d 750, 759 (2d Cir. 1977) (“knowing assistance of or participation in a fraudulent scheme gives rise to liability under § 10(b) as an aider and abettor . . . knowledge of the fraud ... is indispensable”); Kerbs v. Fall River Indus., Inc., 502 F.2d 731, 739-40 (10th Cir. 1974); SEC v. Coffey, 493 F.2d 1304, 1316 (6th Cir. 1974), cert. denied, 420 U.S. 908, 95 S.Ct. 826, 42 L.Ed.2d 837 (1975). Accordingly, in my view, before “reckless disregard” may be *52equated to scienter, there must be a showing that the party charged with violation of Rule 10b-5 deliberately shut his eyes to the obvious, such as material facts that would be patent upon a mere cursory examination or review.1 Failure to conduct an investigation — even if required by one’s status as a fiduciary — will not suffice.
Judged by this standard, the facts as stated by the majority fail to support a conclusion that Stott participated in any fraud with the scienter required by Hoch-felder. As proof that Stott “rendered substantial assistance to Yamada in [his fraud],” the majority relies upon Stott’s processing of Yamada’s securities orders given pursuant to his discretionary authorization from Rolf, Stott’s representations to Rolf to the effect that Rolf could depend on his adviser’s judgment, and Stott’s failure to disclose Yamada’s fraud (i. e., the purchase of low-grade securities). However, the majority is vague as to how any of this conduct can be said to have been undertaken with the “reckless disregard” that must be treated as the equivalent of knowledge of Yamada’s fraud. Apparently, the theory of the majority opinion is that Stott’s continuing expressions of confidence in Yamada and his willingness to accept the adviser’s orders were reckless in view of his “[awareness] that the quality of the securities being purchased by Yamada was very low.” The opinion describes Stott’s reassurances regarding Rolf’s reliability as having been made “conclusorily . . . without investigation and with utter disregard for whether there was a basis for the assertions.” Likewise, it states that Stott “either recklessly failed to learn of or failed to disclose Yamada’s web of fraud” — again referring only to the purchase of unsuitable securities. However, even conceding that Stott believed some or many of Yamada’s purchases to be “junk”, it would have required a considerable investigation for him to determine whether Yamada’s widely-recognized reputation for brilliance was unwarranted or whether the ratio of risk to return on Rolf’s portfolio as a whole was consonant with the doctor’s investment objectives. A failure to perform such an investigation without more does not, after Hochfelder, establish scienter.
Sympathetic as I am to vigorous enforcement of the antifraud provisions of our federal securities laws, I cannot subscribe to a process of extrapolation, approved by the majority opinion, whereby Yamada’s investment of Rolf’s account in unsuitable securities is elevated to the level of Rule 10b-5 fraud and Stott’s personal belief that some of the investments were “junk” is recognized as a sufficient basis for concluding that he acted with scienter. Reasoning along these lines, the majority has ended up with a holding that is virtually indistinguishable from that reversed in Hochfelder. A broker (Stott) is held liable under Rule 10b-5 for negligence in failing to make an adequate inquiry into the investments recommended by the plaintiff’s investment adviser (Yamada), who turned out to be dishonest even though widely acclaimed as a competent and successful investment adviser at the time. In short, stripped of its conclusory characterizations, the majority opinion would barely make out a case of negligence on the part of Stott, much less one of his deliberately shutting his eyes to facts that would have revealed the “fraud” on Yamada’s part. When additional lower court findings and undisputed evidence, unmentioned or glossed over by the majority, are taken into account, the failure to make out a case of “fraud” based on unsuitable investments or aiding and abetting of that fraud by recklessness becomes apparent. In the first place, Dr. Rolf was no novice or “babe in the woods” in the investment field. He had had 19 years of experience, includ*53ing 10 years completely on his own, during which he was his own adviser and the supervisor of various trading accounts maintained by him with several different Cleveland brokers. Having tasted success in the predominantly bull market of the 1950s and 1960s, Rolf had advised Stirling of BEDCO as early as June, 1967, that his “objective [was] to double my equity” and told Yama-da as late as September 1970 (after the value of his portfolio had greatly declined, principally because of investments made by Yamada), “As you recall, we started out with roughly $2,000,000 of Securities which could be used for trading. ... It was my impression that we would wind up with 3.5 to 5 million in a year’s time.”
The picture that emerges from these and other statements made by Rolf is one of a sophisticated investor in securities who was well aware of the difference between gilt-edge, relatively safe securities, on the one hand, and speculative “high fliers,” on the other, and who had determined to get richer quick by choosing an aggressive program involving high-risk, OTC stocks in the hope that his adviser would succeed in picking a few big winners, but well aware of the pitfalls that were involved.2
From this record it is small wonder that when introduced by Stott to a couple of prospective investment advisers, whom he personally interviewed, he chose 26-year old Yamada, “one of the ‘new breed’ of young money-managers who had emerged as highly successful in the stock market” during the late 1960s by dealing in special situations, mutual funds, new issues, hedge funds and assorted speculative ventures.3 Rolf’s correspondence discloses that he could hardly be classified as a naive, trusting person of limited intelligence looking for safe investments designed to yield substantial income and security. Rolf testified that he “wanted somebody other than Stott” to handle his account. In short, he wanted to gamble on some “high fliers” and for this he looked to Yamada, not Stott. Indeed, Rolf never even met Stott in person until October, 1970, some 17 months after Rolf had selected Yamada as his investment adviser. By that time Rolf’s portfolio had declined in market value from $1,423,000 to approximately $223,000.
The tenuousness of holding Stott liable as an aider and abettor is further underscored by the anomalous nature of his responsibilities toward Rolf, once Rolf had chosen Yamada rather than BEDCO to advise him as to his investments. The oral Rolf-Stott arrangement, according to Judge Pierce’s findings, was that while Yamada alone would have discretionary responsibility with respect to what was to be bought and sold for Rolf’s account, Stott would “supervise his [Rolf’s] account and Rolf understood that Stott was to look after his interests.” In such a context the role of overseer, in the absence of some fixed written delineation of authority and responsibility, borders on the meaningless.4 It is an elementary market fact, which should be judicially noticeable, that since there are literally *54thousands of business ventures traded on various exchanges in the United States, it is impossible for any one investment adviser or brokerage concern to follow all traded business ventures closely or to maintain sufficient information with respect to each and every one to furnish an informed expert opinion with respect to its prospects as an investment. As a result, each investment adviser and group of security analysts on the staff of a broker or investment banking concern usually limits itself to in-depth study of a fraction of the entire gamut, maintaining a detailed analysis of each company in the selected group, based on studies of every available bit of information about it, including visits to and conferences with its top personnel, customers and others. Although an adviser or brokerage house may have expertise with respect to companies within its selected group, it would have much less knowledge, or even none, about hundreds of other traded companies unless it undertook a special study.
If Rolf had looked to Stott and BEDCO for investment counsel, as he had to Stirling, Stott would undoubtedly have learned more about Rolf’s investment objectives and maintained for him a portfolio of securities with which BEDCO’s experts were intimately familiar. As it was, Stott was justified in relying upon Yamada’s expertise with respect to the securities recommended by him. Although Stott may have personally thought that some of the latter were “junk” or “high fliers” it must be remembered, first, that Yamada then enjoyed an excellent reputation as a successful adviser. Once a student at the Harvard Business School, he had risen rapidly to the position of officer in the investment banking firm of Kuhn Loeb & Co., described by Judge Pierce “as a conservative and prestigious firm which generally handled ‘triple-A’ clients,” where Yamada developed “expertise in research and ‘special situations’.” Yamada had then left Kuhn Loeb to form a partnership with others, including Keither Funston, former President of the New York Stock Exchange, John Burns, former President of RCA and Chairman of the Board of Cities Service, and J. Richardson Dilworth, head of the Rockefeller Brothers Fund. Yamada was well known in the securities field, managed approximately $20 million for customers and was in daily consultation with numerous securities firms. Rolf himself, an experienced trader on his own behalf, after personally interviewing Yamada was favorably impressed by him as “very brilliant and capable.”
In short, although Rolf later testified, after Yamada’s advice had proved disastrous, that he had “expected BEDCO to look after his account,” (emphasis added), Rolf never put this in writing or defined precisely what was to be BEDCO’s area of responsibility other than to keep him advised as to what securities were being purchased and sold for the account. On the contrary, by letter dated May 9, 1969, to BEDCO Rolf directed, “You will kindly follow his [Yamada’s] instructions in every respect concerning my account with you as he may order and direct.” Rolf had what amounted to a custody account with BEDCO. When it came to investment decisions, although Stott (whom Rolf had never met and hardly knew) made recommendations to Yamada, it was clear that Yamada was in command.5
Against such a background, I fail to find any substantial basis for holding that Stott’s assurances to Rolf, made long prior to the time when Yamada’s fraud and manipulations became known, regarding Ya-mada’s competence and Stott’s expressions of opinion to the effect that if Yamada recommended certain investments they must be all right, constituted aiding and *55abetting of any fraud on Yamada’s part.6 Although Stott might have personally considered some of the investments made by Yamada to be unproved and hence “junk,” it would have been foolhardy for him to voice such a view to Rolf, since Yamada, who was in command and had gained his reputation in part from his successful dealing in special situations, might well be possessed of detailed information not available to or obtained by BEDCO or Stott. Absent evidence to the contrary, we cannot assume that Stott’s views were based on independent research, as distinguished from hunch. Some of the greatest gains and widest movements in traded securities have occurred in OTC stocks, of which astute advisers have taken advantage because of intensive private investigation revealing business prospects or probable takeovers not generally known. In this case, for instance, as Judge Pierce noted, “Yamada made fairly substantial profits for Rolf on short-term trading in six of the seven manipulated stocks” which he bought for Rolf in 1970. 424 F.Supp. at 1034.
An analysis of the securities issues purchased by Yamada for Rolf reveals that many of the investments, although they declined in market value when the bloom faded on the bull market, were concededly not unsuitable, that others were listed on major stock exchanges, and that some “unsuitable” issues turned out to be profitable.. Of the 40-odd security issues purchased for Rolf’s account which form the basis of his claim, the district court found that Stott had “either recommended or was somewhat involved with the decision to purchase the following twelve.”7 There is no evidence that any of these 12 were unsuitable for Rolf’s account. Nor was there any testimony as to the suitability of certain other securities bought for Rolf.8
Under these undisputed circumstances, including Yamada’s investment of a substantial portion of Rolf’s account in apparently suitable securities, I cannot share the majority’s conclusion that investment of the balance in securities labelled unsuitable by an expert witness amounts to fraud, much less that Stott’s conduct aided and abetted such “fraud.” I favor holding a broker to his duties under Rule 405, for violation of which remedies are provided by the New York Stock Exchange, N.Y.S.E. Constitution Art. VIII, Rules 481, et seq. (providing for arbitration of disputes between member firms and others) and §§ 6, 13 (authorizing suspension, expulsion, fines and censure), and an investment adviser for fraud in violation of the Investment Advisors Act, see Abrahamson v. Fleschner, 568 F.2d 862 (2d Cir. 1977). But to hold that investment of a customer’s account in unsuitable securities constitutes § 10(b) fraud and that a broker who executes orders given by an investment adviser pursuant to his discretionary authority may be held liable as an aider and abettor of such fraud, places an *56extraordinary and unconscionable burden on both the adviser and the broker.
Nor do I agree with the district court’s view that an implied right of action for damages in favor of Rolf may be based on Stott’s alleged violations of N.Y.S.E. Rule 4059 or Article III, § 2, of the Rules of Fair Practice of the National Association of Securities Dealers.10 Accepting the premise that “the court must look to the nature of the particular rule and its place in the regulatory scheme, with the party urging the implication of a federal liability carrying a considerably heavier burden of persuasion than when the violation is of the statute or an SEC regulation,” Colonial Realty Corp. v. Bache & Co., 358 F.2d 178, 182 (2d Cir.), cert. denied, 385 U.S. 817, 87 S.Ct. 40, 17 L.Ed.2d 56 (1966), we must also follow the guidelines established by the Supreme Court in Cort v. Ash, 422 U.S. 66, 78, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975), which require us to determine (1) whether the plaintiff is a member of the class for whose especial benefit the. law was intended; (2) whether Congress expressed any preference for or against a remedy; (3) whether a private action would be consistent with the underlying purposes of the legislative scheme; and (4) whether the cause of action is one in an area traditionally relegated to state law.
Applying these guidelines, it is not at all clear that Rule 405 or Art. III, § 2, were intended solely for the particular benefit of investors. Indeed, they appear designed as much to protect brokers from being victimized by unscrupulous customers. See Landy v. FDIC, 486 F.2d 139, 166 (3d Cir. 1973), cert. denied, 416 U.S. 960, 94 S.Ct. 1979, 40 L.Ed.2d 312 (1974). To imply a damages remedy based on nonfeasance or gross negligence would, moreover, run counter to the principles of Hochfelder and possibly inhibit the NYSE and NASD from promulgating additional standards for the guidance of their members. In short, NYSE and NASD rules are not the same for the purpose of implied remedies as SEC rules. See Jenny v. Shearson, Hammill & Co., [1974-75 Transfer Binder] Fed.L.Sec.Rep. (CCH) ¶ 95,021, at 97,582 (S.D.N.Y.1975); Plunkett v. Dominick & Dominick, 414 F.Supp. 885 (D.Conn.1976). Lastly, whatever obligation might be imposed by rule on a broker dealing solely with his customer, the interposition of an investment adviser with the sole discretionary authority to determine what investments shall be made for the customer weighs against extending any liability of the broker that might otherwise be implied on the basis of a direct broker-customer relationship.
For these reasons, I would reverse the judgment of the district court and remand with directions to enter judgment in favor of the defendants dismissing the action.
. The cases cited by the majority do not warrant the recognition of any more inclusive definition of scienter. See, e. g., Lanza v. Drezel & Co., 479 F.2d 1277, 1306 & n. 98 (2d Cir. 1973) (en banc) (judgment for defendant affirmed; no showing that he “willfully closed his eyes to or turned his back” on the fraud; material failure to disclose must be apparent “without any extraordinary effort.”); Sanders v. John Nuveen & Co., 554 F.2d 790, 793 (7th Cir. 1977) (no finding that “danger was either known to the defendant or so obvious that the defendant must have been aware of it”).
. Judge Pierce found Rolf to be a “sophisticated” investor, willing to take “substantial risks” and “to engage in extensive trading,” who “wanted a very aggressive investment program” and “kept careful watch over his securities,” verifying current market prices frequently and employing a bookkeeper to follow his investments.
. Rolf and Yamada both testified that from the outset of their relationship it was agreed that in an effort to obtain a greater capital gain on Rolfs investments than he was presently able to realize Yamada would be making changes in Rolfs portfolio.
. The weakness inherent in attempting to predicate liability on Stott’s telephonic agreement to “look after” Rolfs account is underscored by Rolfs maintenance of accounts with at least seven brokerage concerns other than BEDCO, through which purchases and sales were executed, some on Yamada’s advice, at a net loss of $133,229, without the knowledge or participation of Stott or BEDCO. The other concerns included Lynch, Jones & Ryan; Kordich, Victor & Neufeld; Woodcock, Moyer, Fricke & French; Provident Securities; Bearwald & De-Boer; Amswiss International; and Laird Incorporated. Although it seems that Stott often received notice of transactions conducted through firms other than BEDCO, he was hardly in a position to influence specific purchases or sales.
. Rolf also appears to have made some investment decisions that may not have been shared even by Yamada, much less by Stott. For instance, in June 1969, Rolf opened a non-discretionary account with Hornblower & Weeks-Hemphill & Noyes, through which he purchased
American Scientific Corp.
Dasa Corp.
Data Network Mega Systems, Inc.
Ampex Corp.
Mohawk Data Science.
. Moreover, the generality of Stott’s conclusory assurances — “that Yamada knew what he was doing and that if Yamada were purchasing stocks they must be satisfactory” — must have made it readily apparent to Rolf from the outset that Stott was relying on Yamada’s excellent reputation rather than on an investigation into the merits of each investment, conducted personally or through BEDCO’s staff of analysts. Otherwise, he would have reported to Rolf on the results of his independent research. Yet Rolf never requested or received any such check-up, even though he was well aware from past experience of BEDCO’s facilities.
. The 12 were:
Simplex Wire & Cable Co.
Teradyne, Inc.
Standard Oil of N. J.
Reading & Bates Offshore
Intertherm, Inc.
Food Fair Properties
International Funeral
Natomas Corp.
Asamera Oil Corp.
Carter Wallace, Inc.
West Coast Production
Equity Funding Corp.
. These include:
Benquet Consolidated
City Investing
Consolidated Oil & Gas
Funeral Homes of America
Loews Theatres
Outlet Co.
Four Seasons Nursing Centers of America
U.S. Natural Resources
Milgo Electronic Corp.
. Rule 405 provides in pertinent part:
“Every member organization is required through a general partner, a principal executive officer or a person or persons designated under the provisions of Rule 342(b)(1) to “(1) Use due diligence to learn the essential facts relative to every customer, every order, every cash or margin account accepted or carried by such organization and every person holding power of attorney over any account accepted or carried by such organization. [and to] “(2) Supervise diligently all accounts handled by registered representatives of the organization.”
. Article III, § 2, provides:
“In recommending to a customer the purchase, sale or exchange of any security, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs.”