What Is Rule 10b-5?Rule 10b-5 is a regulation created under the Securities and Exchange Act of 1934 that targets securities fraud. This rule makes it illegal for anybody to directly or indirectly use any measure to defraud, make false statements, omit relevant information, or otherwise conduct business operations that would deceive another person in the process of conducting transactions involving stock and other securities. Show
Rule 10b-5 is formally known as the Employment of Manipulative and Deceptive Practices. Key Takeaways
How Rule 10b-5 WorksRule 10b-5 is the Securities and Exchange Commission's (SEC) main basis for investigating possible security fraud claims. Violations of the rule include executives making false statements in order to drive up share prices, a company hiding huge losses or low revenues with creative accounting practices, or actions taken to grant current shareholders a better return on their investments—as long as the deception remains undiscovered. These schemes typically require ongoing, misleading statements in order to perpetuate the fraud. Rule 10b-5 also covers instances where an executive issues false statements in order to artificially drive down the price of a company’s stock so they can buy up more shares at a discounted rate. These and other manipulative uses of confidential information are acts of "insider trading." In addition to making illicit profits and/or attracting more investors, these schemes are also put into motion as a way of taking over a company by changing the shareholder balance. The Introduction of Rules 10b5-1 and 10b5-2In 2000, the SEC further defined and clarified a range of issues related to potential securities fraud with their ratification of Rule 10b5-1 and Rule 10b5-2. These rules put insider trading into a more modern, legal perspective. Rule 10b5-1Rule 10b5-1 says that an individual is trading based on material nonpublic information (MNPI) if that person knows of said information while engaging in a sale or purchase of securities. There are, however, exceptions and stipulations of Rule 10b5-1 that allow individuals to proceed with trading even if they possess such information. That includes trades that are parts of plans that were already set in motion through a contract or process that would not be affected by knowledge of the information. According to Rule 10b5-2, securities fraud can be committed even under nonbusiness circumstances. Rule 10b5-2Rule 10b5-2 explains ways that the misappropriation theory—which postulates that a person who uses insider information in trading securities has committed securities fraud against the information source even if that person is not an insider—can apply even under nonbusiness circumstances. It further states that an individual who obtains confidential information is obliged to a duty of trust. journal article Loss of State Claims as a Basis for Rule 10b-5 and 14a-9 Actions: The Impact of Virginia BanksharesThe Business Lawyer Vol. 49, No. 1 (November 1993) , pp. 295-325 (31 pages) Published By: American Bar Association https://www.jstor.org/stable/40687460 Read and download Log in through your school or library Read Online (Free) relies on page scans, which are not currently available to screen readers. To access this article, please contact JSTOR User Support. We'll provide a PDF copy for your screen reader.With a personal account, you can read up to 100 articles each month for free. Get StartedAlready have an account? Log in Monthly Plan
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Abstract In Santa Fe Industries, Inc. v. Green, 430 U.S. 462 (1977), the Supreme Court in a footnote implied that if, during the course of a freeze-out merger, management omitted to state a fact that would have provided a basis for a state law remedy, such omission could possibly serve as the basis for a federal securities action under rule 10b-5 of the Securities Exchange Act of 1934. Some appellate courts interpreted Santa Fe to allow federal securities actions to be premised solely on the loss of state law claims caused by management's misleading statements. Commentators have argued that interpreting Santa Fe to allow such actions is contrary to the pronouncement in the text of the opinion. Virginia Bankshares, Inc. v. Sandberg, 111 S. Ct. 2749 (1991), turns the tide. Virginia Bankshares indicates that the Supreme Court would be unwilling to allow shareholders to bring federal securities actions based on the loss of a state law claim. This Article provides guidance to securities law practitioners and offers a solution to the courts in light of Virginia Bankshares. Journal Information The Business Lawyer is the premier business law journal in the country, circulating to approximately 60,000 readers. It contains articles of significant interest to the business lawyer, including case law analysis, developing trends and annotated listings of recent literature. Publisher Information With nearly 400,000 members, the ABA provides law school accreditation, continuing legal education, information about the law, programs to assist lawyers and judges in their work, and initiatives to improve the legal system for the public. Rights & Usage This item is part
of a JSTOR Collection. Which of the following are an affirmative defense for those violating the FCPA?The FCPA's anti-bribery provisions contain two affirmative defenses: (1) that the payment was lawful under the written laws of the foreign country, or “the local law defense,” and (2) that the money was spent as part of demonstrating a product or performing a contractual obligation, the “reasonable and bona fide ...
Which term refers to a person acting in a way that breaches their duty to another?Formalizes the relationship between the auditor and the client for a specific engagement. Which term refers to a person acting in a way that breaches their duty to another that causes harm? Negligence.
What is a worrisome consequence under the joint and several liability principle?What is a worrisome consequence under the joint and several liability principle? Each negligent party is liable for the portion of the damages for which it is responsible. All negligent parties are always liable for damages.
In which of the following circumstances would a qualified opinion not be appropriate?In which of the following circumstances would a qualified opinion not be appropriate? The auditors lack independence with respect to the audited entity. a violation of generally accepted accounting principles is sufficiently material and pervasive that a qualified opinion is not justified.
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Which of the following would eliminate the ability of a plaintiff to prevail under rule 10b-5?
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