8,114 research outputs found
Fiduciary Suits Under Rule 10b-5
SEC rule 10b-5 has continually expanded the federal sphere of corporate regulation. The rule\u27s most recent encroachment upon state corporation law involves the derivative suit for breach of fiduciary duties. While the Maytag deception requirement temporarily impeded development in this area, the latest cases demonstrate that it no longer precludes 10b-5 application. This note analyzes the deception requirement under theories of imputed knowledge, reviews the limitations upon 10b-5 use, and posits a developing standard for 10b-5 violation
Inroads on the Necessity for a Consummated Purchase or Sale Under Rule 10b-5
The traditional application of rule 10b-5 has required that there be fraud in connection with the purchase or sale of a security. While the Birnbaum rule that a plaintiff be an actual purchaser or seller has been debilitated and the definition of purchase or sale considerably expanded, the necessity for some consummated transaction in securities has remained effectively unchallenged. This note explores the manner in which the in connection with language of 10b-5 may be extended to encompass securities frauds in situations involving no consummated purchase or sale transaction
A Framework for Analyzing Attorney Liability Under Section 10(b) and Rule 10b-5
[Excerpt] “Lawyers who make their living representing securities issuers face a myriad of challenges. Securities lawyers must navigate and master an intricate body of statutory, regulatory, and case law at both the state and the federal level and ensure that their clients comply with the law. The compliance requirement, however, is not limited to the issuer clients. Defrauded investors will often seek recovery of their losses from both the issuer of the failed investment securities and from the lawyers who represent the issuer, which only exacerbates the complexity of the securities lawyer’s work. These securities fraud actions against lawyers raise serious questions about the proper scope of liability under the federal securities laws. Just as lawyers strive for clarity, consistency, and predictability in advising their clients on securities compliance issues, lawyers seek the same level of precision regarding their own compliance.
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The Court has never directly addressed the issue of attorney liability under section 10(b) of the 34 Act and Rule 10b-5. However, the Court’s recent pronouncements on primary liability of secondary actors under Rule 10b-5 indicate that the standard for such liability is increasingly becoming one that attorneys acting in the traditional role of adviser and draftsperson to securities issuers will not satisfy. This development does not give lawyers unbridled freedom or authority to commit securities fraud without fear of sanction, nor does it undermine the 34 Act’s purpose of insuring fairness and honesty in the securities markets. On the contrary, protecting lawyers who lend their expertise to the issuers and sellers of securities is consistent with insuring such fairness and honesty. Moreover, existing rules and standards governing attorney conduct and the concomitant penalties for violation of those rules provide the appropriate level of regulation for lawyers, and this article does not suggest otherwise. The article argues only that section 10(b) and Rule 10b-5 are inappropriate and, in most cases, inapposite means of redressing attorney misconduct in connection with a fraudulent securities transaction.
Part II of this article will provide some background on section 10(b) and Rule 10b-5 and will discuss how section 10(b) and Rule 10b-5 have been applied in the area of liability of outside service providers such as lawyers and other secondary actors. In addition, part II will review the most recent developments of the law in this area and discuss how these developments provide an increased level of protection for securities lawyers. Part III of this article will examine how other areas of federal and state law have addressed the issue of attorney liability and suggest that the concepts can be applied to the section 10(b) and Rule 10b-5 analysis. Part IV will briefly discuss the role of the securities lawyer and the influence of the market for legal services on the manner in which these lawyers sell their services to potential clients. The article will then argue that the potential liability of any person under section 10(b) and Rule 10b-5 must be defined in terms of conduct and not in terms of the person’s role in the particular transaction giving rise to the claim. That framework will permit the securities lawyer to more effectively fulfill his or her role because the standard for attorney liability in a private action under section 10(b) and Rule 10b-5 will be clearer.
Exclusive Federal Jurisdiction for Implied Rule 10b-5 Actions: The Emperor Has No Clothes
Courts have long assumed the existence of exclusive federal jurisdiction over private actions implied from section 10(b) of the Securities Exchange Act of 1934 and rule 10b-5. The result is not only to restrict forum choice for rule 10b-5 claimants but also to generate a host of questions concerning the extent of federal authority: whether rule 10b-5 actions are exempt from the claim and issue preclusive effects of state court decisions; whether state courts can hear defenses and state-created claims that involve rule 10b-5; and whether federal courts can stay rule 10b-5 actions in deference to state court litigation. In dividing on these questions, courts invariably fail to examine the underlying premise: that exclusive federal jurisdiction has a valid legal basis. The thesis of this Article is that exclusive federal jurisdiction over rule 10b-5 actions lacks a legitimate foundation and should be rejected. State courts should share with federal courts the adjudication of rule 10b-5 actions
Hell Hath No Fury Like an Investor Scorned: Retribution, Deterrence, Restoration, and the Criminalization of Securities Fraud Under Rule 10b-5
This brief article focuses attention on the ineffectual nature of prosecutions of corporations and their insiders - generally, officers and directors - for securities fraud under Rule 10b-5. Specifically, the article begins by briefly summarizing the nature of enforcement actions and related penalties under Rule 10b-5. Next, the article argues that, as currently conceived and executed, criminal enforcement actions under Rule 10b-5 are ineffective as a means of achieving retribution, as deterrents of undesirable behavior, and as enforcement vehicles that vindicate the policies underlying Rule 10b-5. As a means of addressing these criticisms, the article suggests possible enhancements to Rule 10b-5 prosecutions, including more victim involvement in the proceedings. These enhancements, rooted in victims\u27 rights initiatives and restorative justice principles, may better serve societal and regulatory aims
Scienter Requirement in Actions Under Rule 10b-5
More than twenty years have now elapsed since a private right of action under rule 10b-5 was first recognized judicially. In the interim, rule 10b-5 has become the most prolific source of litigation since Henry Ford invented the flivver. And, the Rule is assuming even greater importance. Private actions under 10b-5 in excess of seventy-seven million dollars have been instituted against Texas Gulf Sulphur and its officers and directors. The Securities and Exchange Commission proposals to implement the Wheat Report will result in an increased emphasis on 10b-5. Notwithstanding the importance of rule 10b-5 and the numerous reported decisions and legal writings devoted to it and its nuances, serious questions remain largely unanswered, particularly with regard to the elements of a private action under the Rule. This article will treat one such question : the role of scienter in a private action under rule 10b-5 for misrepresentations in the sale of securities
Circuit Split or a Matter of Semantics? The Supreme Court\u27s Upcoming Decision on Rule 10b-5 Scheme Liability and Its Implications for Tax Shelter Fraud Litigation
After Internal Revenue Service investigations exposed widespread fraud among tax shelter promoters, angry investors sued for securities fraud under Securities and Exchange Commission Rule 10b-5, which provides a cause of action against “primary violators” of the Rule but not against mere “aiders and abettors.” This controversial distinction is further complicated by the recent introduction of “scheme liability” lawsuits under two previously obscure provisions of Rule 10b-5. This Note examines the circuit split over the “primary violator”/“aider and abettor” distinction in scheme liability claims, arguing that the circuits\u27 conflicting concepts of scheme liability actually cover similar conduct, and that tax shelter promoters likely will be considered primary violators under either concept
Scienter Requirement in Actions Under Rule 10b-5
More than twenty years have now elapsed since a private right of action under rule 10b-5 was first recognized judicially. In the interim, rule 10b-5 has become the most prolific source of litigation since Henry Ford invented the flivver. And, the Rule is assuming even greater importance. Private actions under 10b-5 in excess of seventy-seven million dollars have been instituted against Texas Gulf Sulphur and its officers and directors. The Securities and Exchange Commission proposals to implement the Wheat Report will result in an increased emphasis on 10b-5. Notwithstanding the importance of rule 10b-5 and the numerous reported decisions and legal writings devoted to it and its nuances, serious questions remain largely unanswered, particularly with regard to the elements of a private action under the Rule. This article will treat one such question : the role of scienter in a private action under rule 10b-5 for misrepresentations in the sale of securities
Taming Rule 10b-5-1: The Unfinished Business of \u3cem\u3eTexas Gulf Sulphur\u3c/em\u3e
Insider trading has shaped both the evolution of the Securities Exchange Commission (SEC) and the current state of securities law. The injustice of insider trading, especially as felt by everyday shareholders and investors, mandated action by government regulators. Consequently, the SEC enacted Rule 10b-5—a prohibition and prosecution on any corporate officials’ use of material, non-public information for private profit. In SEC v. Texas Gulf Sulphur Co., Rule 10b-5 grew into the sanction on insider trading that it is known as today. As case law whet Rule 10b-5’s reach on in- sider trading, corporate executives became increasingly concerned that necessary business transactions would be considered fraud. Thus, the SEC promulgated Rule 10b-5-1. Through this safe harbor, corporate officials could again purchase or sell shares in the companies they ran. Although the safe harbor is subject to certain limitations, abuse of Rule 10b-5-1 has become increasingly apparent. This article seeks to critically analyze the shortcomings of Rule 10b-5-1 and investigate potential courses of action that could remediate its insufficiencies
Freedom to Defraud: Stoneridge, Primary Liability, and the Need to Properly Define Section 10(b)
In Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., the Supreme Court determined that primary liability under section 10(b) of the Securities Exchange Act does not extend to third-party actors engaged in sham transactions, even when such transactions have the purpose and effect of deceiving investors. The Court reasoned that there is no liability when an actor\u27s deceptive conduct is not communicated directly to investors. This Note argues that the Supreme Court misinterpreted section 10(b) and Rule 10b-5 and that policy considerations weigh in favor of using securities fraud litigation to deter culpable actors. It argues both for the substantial participation standard and the revitalization of scheme liability in order to best comply with the language and policies of section 10(b) and Rule 10b-5
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