10-B 5 Flashcards
10-B (5)
A broad prohibition on fraud in connection with interstate securities transactions.10-B5 applies to security fraud (untrue statements of material facts) & insider trading.
Crop can still be liable for false statements whether or not it trades.
P must show
1. Material misstatement or omission of material fact
2. In connection with the purchase or sale of the securities
3. Intent to deceive or reckless disregard for the truth or falsity of the statements
4. Reliance
5. Causes losses
Conduct
(Deceptive or Manipulative)
The plaintiff must show there was a deceptive or manipulative conduct.
Deceptive conduct occurs when there is a misstatement of material fact or an omission,when an omitted fact would have fixed a prior misstatement. Generally corporations have no duty to disclose but if they do disclose it must be the full truth. Manipulation is usually a legitimate action, however done in a manner to move the market to reflect a false value on the security.
In connection with the purchase or sale of the security
The fraudulent conduct must have been in connection with the purchase or sale of the security.
Material
A statement is material if there is a substantial likehood that a reasonable investor would consider it important when determining whether to invest or not.
If the statement involves future event, the court will look at the indicated probability of the event occurring and the anticipated magnitude of the event based on the totality of circumstances.
Forward looking statement
(Bespoke causation/ safe harbor)
A forward looking statement is a statement that is regarding the corporation future projections, plans or strategies. Includes words like (believes, intends, plans, and hope).
Bespoke causation> A forward looking statement is not actionable if accompanied by meaningful cautionary language)
Section 21E provides a safe harbor for forward looking statements in private action for false or misleading statements.
Protection applies under 3 conditions:
1. Statements is immaterial
2. P can not prove that the statement was made by or with the approval of the executive officer who had actually knowledge that the statement was false.
3. Statement was accompanied by meaningful cautionary language( more than boilerplate )
Scienter
(Intent/ recklessness)
The plaintiff must state with particularity that the defendant had bad motive or the intent to deceive, defraud or manipulate the market.
P may also claim there was a reckless disregard for the truth or falsity of the statement. Mere negligence is not enough.
Recklessness disregard occurs when there is an extreme departure from the ordinary standard of care & could cause harm to P.
Reliance
(But-for)
P must prove that misrepresentation of material fact or omission of material fact induced them to the purchase or sale of the securities (but-for)
FRAUD on market: presumes stock prices reflect all public info so misleading statements are fraud even without direct reliance.
Economic loss
P must show they suffered economic loss
Loss causation
The p must show that the defendant should have reasonable foreseen that their conduct would result in a price decline and this the plaintiffs harm
Instrumentality
The deal must use an instrumentality of interstate commerce (phone, mail , trade on national exchange)
Opinion
An opinion is not actionable by the plaintiff, if the statement was made in good faith and based on reasonable information. The defendant must have subjectively believed in the truth of the opinion.
