WEEK 1 Overview
A.THE FEDERAL SECURITIES STATUTES
1. THE SECURITIES ACT of 1933
Historical context: Great expression; Blue sky law
Fraud-Fraudulent
a. The registration requirement
b. Exemptions from Registration
c. Liability Provisions
2. THE SECURITIES EXCHANGE ACT OF 1934
private cause of action
SEC only have civil authority
DOJ has criminal authority
a. Section 10(b)and Rule 10b_5
b Market Manipulation
c Disclosure obligations: Reporting companies
d. Proxy Regulation
e. Tender offer regulation
f. Self regulatory organization
3. THE Private SECURITIES LITIGATION REFORM ACT OF 1999
4. THE SARBANES-OXLEY ACT OF 2002
5.THE DODD‐ FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT OF
2010
B.THE COURTS
C.THE SECURITIES AND EXCHANGE COMMISSION
1. The power to adopt rules that implement laws.
2. Second, the SEC has the power both to initiate administrative actions against securities law violators as
well as to adjudicate those actions.
SEC administrative actions VS. Court proceedings
3. SEC frequently brings enforcement actions in the Federal courts,
4. SEC Often ales amicus briefs on federal securities issues in private actions in which it is not a party.
D.THE DEPARTMENT OF JUSTICE (DOJ)
1.Relationship between the authority of DOJ and SEC
E. STATE LAW
1. The interaction between state law and federal law
F. SOCIAL AND ECONOMIC FORCES
G.THE EFFICIENT CAPITAL MARKETS HYPOTHESIS
Section 10(b) and 10b-5
a. Section 10(b)
Section 10(b) makes it unlawful to “use or employ, in connection with the purchase or sale of any security” a
“manipulative or deceptive device or contrivance in contravention of such rules and regulations as the
[SEC] may prescribe.” 15 U.S.C. § 78j(b). “Security” is defined broadly to include, among other things,
stocks, bonds, debentures, a variety of other instruments, or, “in general, any instrument commonly known
as a ‘security.’” 15 U.S.C. § 78c(a)(10).
b. 10b-5
【§ 240.10b-5 Employment of manipulative and deceptive devices.】The SEC’s implementing regulation,
Rule 10b-5, further defines the scope of the statutory language. The rule renders it unlawful, in connection
with the purchase or sale of any security, to（“任何证券”交易中的“任何人”）:
 采用任何策略、计谋或技巧进行欺诈 Employ any device, scheme, or artifice to defraud;
 对重大事实进行虚假陈述或遗漏某项重大事实 Make any untrue statement of a material fact or to
omit to state a material fact necessary in order to make the statements made not misleading; or
 参与任何行为、实践或商事行为而形成对任何人的欺诈或诈骗 Engage in any act, practice, or
course of business which operates or would operate as a fraud or deceit upon any person.
c.评价
（1）10b-5 规则本来只是单纯的禁止性条款，并没有附随的民事责任。{5}后于 1971 年，联邦最高
法院在 Superintendent of Ins. v. Bankers Life＆Cas. Co.一案中确认了私人诉讼权（private cause of
action）。{6}虽然联邦最高法院在之后对原告资格等方面增设了新的限制, 10b -5 规则依旧是美国证
券法下最具综合性的反欺诈工具, 包括虚假陈述和隐瞒重大事实在内的多种欺骗行为，涵盖公司管
理、内幕交易、操纵市场、券商欺诈客户等。
（2）构成 10b-5 规则责任的要件 （elements of cause of action）
- 有关/相关性（In Connection with）
- 欺诈（Fraud）
- 重大事实（Materiality）
- 明知/故意（Scienter）
- 信赖/因果关系（Reliance/Causation）
- 交易上的因果关系（Transaction Causation）
- 损害上的因果关系（Loss Causation）
WEEK 2 & 3 & 4
A. Requirement of Manipulation or Deception
1. Material misstatement or omission in general
a. mere breaches of Fiduciary duty
Santa Fe Industries, Inc. v. Green, 430 U.S. 462 (1977)
b. corporate mismanagement and lost state remedies
Healey v. Catalyst Recovery of Pennsylvania, Inc.
2. Material Omissions in particular
a. The general- Silence is not deceptive absent a duty to speak
Galgher vs Abbott Laboratories
b. The duty to disclose
duty to correct and duty to update
Santa Fe
Industries, Inc. v.
Green, 430 U.S.
462 (1977)
Healey v. Catalyst
Recovery of
Pennsylvania, Inc.
Gallagher vs
Abbott
FACTS
P: 简易兼并（shortform merger）子公
司小股东
D：子公司绝对控股
股东，想要兼并子
公司
起因：D 在兼并
后，根据子公司估
值给 P 补偿，P 认
为价格较低并认为
D 进行了欺诈
D 违反忠诚义务并
构成欺诈
雅培被处罚不公开
--FDA 警告向雅培
诊断部门
--1999 年 3 月 9 日
雅培提交了 SEC10K 年度报告，详细
说明了该公司的财
务状况
--1999 年 3 月 17
日，FDA 进一步警
告雅培
--在 1999 年 9 月 29
日，雅培实验室发
表了一份公开声
明，解释了 FDA 的
论点，并指出雅培
实验室和 FDA 正在
进行和解讨论
B. The materiality requirement
1. Materiality defined
2.The materiality of soft information
10b-5 的立法目的：防止
欺诈-必须有错误陈述或
者隐瞒事实的行为。
仅仅违反忠诚义务并不
构成欺诈
Duty to correct
Duty to update
1. disclosure 的时间和对
象
①no continuous duty to
disclosure. The 1933 Act
only requires firms reveal
information when
issuing securities. Under
SEC Act 1934, only file
annual and periodic
reports.
②时间的问题
Fraud by omission.
③
Basic v Levinson
3. Forward-looking statements
Forward-Looking Statements（前瞻性声明）: Trump case
A forward-looking statement predicts, projects, or uses future events as expectations or possibilities.
满足安全港（safe harbor）规则，不属于错误陈述
In re Donald J. Trump Casino Securities litigation
In re Donald J. Trump Casino
Securities litigation
C. The “in connection with” requirement
SEC v. Zandford
SEC v. Pirate Investor, LLC
SEC v.
Zandford
用客户账户钱案
在违反信义义务的同时是否
满足证券欺诈
The Securities and Exchange
Commission filed a civil
complaint alleging that a stock
broker violated section 10(b)
of the 1934 act by selling his
customer’s securities and
using the proceeds for his won
benefit without the customer’s
knowledge or consent.
SEC v.
Pirate
Investor,
LLC
whether the alleged fraudulent
conduct was “in connection with the
purchase or sale of any security”
within the meaning of the statute and
the implementing Rule 10b-5.
YES.
降低 in connection with 的标准
Each sale was made to further his
fraudulent scheme and that each was
deceptive because it was neither
authorized by, nor disclosed to, the
Woods. T
Bought or not
Using evidence of people buying the
security
D. The scienter requirement
1. The substantive standard
Ernst & Ernst v. Hochfelder
Ernst &
Ernst v.
Hochfelder
经纪公司诈骗会计不知道案
Petitioner accounting firm was
retained to audit periodically a
brokerage firm's books and
records. Respondents, who
were customers of the
brokerage firm, invested in a
securities scheme ultimately
1. 【interpretation of 10(b)】
A private cause of action for
damages will not lie under § 10(b)
and Rule 10b-5 in the absence of any
allegation of "scienter," i.e., intent to
deceive, manipulate, or defraud on
the defendant's part. 必须要有
scienter ，negligence 是不行的
revealed as fraudulent and
perpetrated by the firm's
president and principal
stockholder. After the fraud
came to light, respondents
filed an action for damages
against petitioner under §
10(b) of the Securities
Exchange Act of 1934 (1934
Act)
E. The purchaser-seller requirement
Blue Chip Stamps(D) v. Manor Drug Stores
Blue Chip
Stamps(D) v.
Manor Drug
Stores
在合并后发行股票时没有告
知真实价格，原告因此没有
购入股票。
①MD 是买家 Manor Drug
was an offeree of a registered
stock offering of newly issued
stock of Blue Chip which was
required to be made under the
terms of a previously entered
antitrust consent decree.
②M 没有买 Manor urged that
Blue Chip had distributed a
materially over pessimistic
prospectus in connection with
this offering in order to cause
offerees not to purchase the
offered stock. And that it in
fact had not purchased the
offered stock because of the
false prospectus.
The new corporation was
required to offer some
substantial shares of common
stock to retailers.
③上诉法院认为即使没有买
也有 standing。Despite the
fact that Manor Drug was not
an actual purchaser or seller of
shares, the United States Court
of Appeals for the Ninth
Circuit held that it was not
Did the plaintiffs have standing to
sue for violation of Rule 10b-5? The
validity of Birnbaum Rule?
NO.
①必须要是 seller 或者是
purchaser。Birnbaum rule
（Birnbaum vs Newport Steel
Corporation）；only purchasers and
sellers of securities can bring suit
under Rule 10b-5。the purchaser or
seller status is a prerequisite to the
maintenance of a private damage
action under Rule 10b-5.
②立法改变没有成功。Efforts to
change this longstanding rule by
amendment of the statute have been
uniformly unsuccessful and there is
considerable evidence that the
Birnbaum rule reflects the intention
of Congress as expressed in the 1933
and 1934 Acts.
②under the Securities Exchange Act
of 1934, derivative investors are
considered buyers or sellers of
securities for application of SEC
Rule 10b-5.
③ 防止滥诉 Vexatious litigation
Legal proceedings started with
malice and without good case.
Cost a lot to defendant
barred from recovering under
Rule 10b-5.
Hourly rate of lawyers: cost a lot
F. Reliance/Causation 信赖/因果关系
[apply only to private actions; do not come into play in SEC or criminal actions]Rule 10b-5 has 2 causation
requirements: (1) reliance requirement; but for test (2)loss causation requirement
1. Reliance requirement
是什么：受损失的人应当证明①自己合理依赖错误或欺骗性陈
述；②自己因为依赖承受了损失
Presumption of reliance:
a. Affiliated Ute Presumption
b. Fraud-on-the-market presumption
a. Affiliated Ute Presumption
Omission
For purchasers, they can never know what then don’t know(the
information is not disclosed)
But for test
Presumption of causation
Certify the class –individual;
burden of proof
(1) Affiliated Ute 银行高价买卖案
RULE: presumption of reliance applies to omission cases.
Rationale:
(2) Binder v. Gillespie
Presumption 仅适用在 Misrepresentation 情形下？whether the
presumption may be invoked in a case involving misrepresentations
or both omissions and misrepresentations
b. Fraud-on-the-market presumption
含义：欺骗了整个市场
Basic v. Levison
2. Loss causation requirement 损害上的因果关系
Dura Pharmaceuticals, Inc. v. Broudo
Affiliated Ute
FACTS
Bank：①served as the transfer
agent for the stock of the
corporation established to
allocate tribal assets. ②
Purchased their shares without
informing them that the stock
Fiduciary relationship?
Omission
从双方律师
的角度去构
思
Basic analysis
framework
was trading at a higher price in a
secondary market.
Binder v.
Gillespie
Basic v. Levison
Dura
Pharmaceuticals,
Inc. v. Broudo
In re OMNICOM
GROUP, INC.
SECURITIES
LITIGATION.
Misrepresentation
Spring water 案
①what the misrepresentation is?
Dissenting opinion
②买家行为
以 4 美元购入 3000 股，后来
跌到 1 美元以下
Proof of individual reliance?
公司合并三次隐瞒消息案
①被告行为：December 1978,
Combustion Engineering, Inc.,
①怎么去 rebut presumption
and Basic Incorporated agreed
Rule 10b–5 defendants may
to merge. During the preceding
attempt to show that the price
two years, representatives of the was not affected by their
two companies had various
misrepresentation, or that the
meetings and conversations
plaintiff did not trade in reliance
regarding the possibility of a
on the integrity of the market
merger; during that time Basic
price
made three public statements
denying that any merger
Efficient market
negotiations were taking place
Integrity of the market
or that it knew of any corporate
developments that would
Small company vs. Big company
account for heavy trading
activity in its stock.
Liability and damages
②原告反应：在第一次隐瞒之
后就卖股票（sold their stock） <securities arbitration >
药物公司谎报批准
Respondents filed a securities
fraud class action, alleging that
petitioners, Dura
Pharmaceuticals, Inc., and some
of its managers and directors
(hereinafter Dura), made, inter
alia, misrepresentations about
future Food and Drug
Administration approval of a
new asthmatic spray device,
leading respondents to purchase
Dura securities at an artificially
inflated price.
虚假记账
Investors brought action against
corporation and its managers for
Plaintiffs did not prove
proximate causation and
economic loss
①loss caused by the defendants'
“spray device” *347
misrepresentations. plaintiffs'
need to prove proximate
causation and economic loss;
An inflated purchase price will
not by itself constitute or
proximately cause the relevant
economic loss needed to allege
and prove “loss causation.”
The Court of Appeals, Winter,
Circuit Judge, held that:
1 disclosure to the market that
director and chairman of
其他因素的
影响
必须要证明
因果关系，
原告并没有
证明因果关
系
和侵权很像
securities fraud, alleging that
managers and corporation
improperly accounted for a
transaction in which corporation
transferred soured Internet
investments to newly-formed
entity.
corporation's audit committee
had resigned due to general
concerns over an aggressive
accounting strategy and the use
of the transaction to remove
losses from the corporation's
books did not constitute a
corrective disclosure of fraud
that would suffice to show loss
causation, and
2 negative publicity drawn from
the resignation was too tenuously
connected to the transaction to
establish loss causation under a
materialization of the risk theory.
G .Damages and Other relief
Damage
Basic contract law
买股票 被骗
Securities back?
Interest on the money (plus interest)
RESCISSION AND RESCISSORY DAMAGES
RESCISSION: D get the stock get the purchase price + plus interst
RESCISSORY DAMAGES: (在没有股票的情况下)give the value back(money/)
Out of pocket
Off set
女人案例
Net out o pocket is predominant
Choose the best calculation method 仲裁书里面说的是正确的
H. Statute of limitations
Reading Assignment for Class #5
(Statute of Limitations)
SupMat, pp. 25-26, 29 (Lampf, Pleva, SarbOx Sec. 804 (S/L)
Casebook, 230-241(Statute of Limitations -Merck & Co. Inc. v. Reynolds)
Casebook, pp. 244-247 (Herman & MacLean, Overlap with Express Actions)
4. PSLRA material – Hill
5. Class Action material – Cyr
Introduction
Exchange Act 最开始没有 contain a limitations period applicable to private Rule 10b-5 actions.
Statute of limitations
What it is
equitable tolling
Statute of limitations vs. Statute of repose
Aircraft industry
1980 will be reasonable? “statute of repose 的起算点则是从行为或事件发生之日起算”
No tolling.
（Sarbanes-Oxley Act Sec. 804， SOX）28 U.S.C.A. § 1658. Time limitations on the commencement of
civil actions arising under Acts of Congress
(a) Except as otherwise provided by law, a civil action arising under an Act of Congress enacted after the
date of the enactment of this section may not be commenced later than 4 years after the cause of action
accrues.
(b) Notwithstanding subsection (a), a private right of action that involves a claim of fraud, deceit,
manipulation, or contrivance in contravention of a regulatory requirement concerning the securities laws, as
defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)), may be brought
not later than the earlier of-(1) 2 years after the discovery of the facts constituting the violation; or
(2) 5 years after such violation.
Lampf,
Pleva,
Lipkind,
Prupis &
Petigrow v.
Gilbertson,
U.S., 1991
①成立合伙企业并出售：During 1979 through 1981, plaintiff-respondents purchased
units in seven Connecticut limited partnerships, with the expectation of realizing federal
income tax benefits. Petitioner, a New Jersey law firm, aided in organizing the
partnerships and prepared opinion letters addressing the tax consequences of investing.
The partnerships failed, and, subsequently, the Internal Revenue Service disallowed the
claimed tax benefits because of overvaluation of partnership assets and lack of profit
motive.
②虚假陈述所在： The claimed misrepresentations were said to include assurances that
the investments would entitle the purchasers to substantial tax benefits; that the leasing of
the hardware and software packages would generate a profit; that the software was readily
marketable; and that certain equipment appraisals were accurate and reasonable.（所称的
虚假陈述包括保证投资将使购买者**2777 有权获得实质性的税收优惠;硬件和软件
包的租赁将产生利润;该软件易于销售;并且某些设备评估准确合理。
③时间过去：In 1986 and 1987, plaintiff-respondents filed complaints. Plaintiffrespondents asserted that they became aware of the alleged misrepresentations only in
1985 following the disallowance by the IRS of the tax benefits claimed.
1. 对于 federal cause of action, 没有诉讼时效要求。
2. 适用证券法本身诉讼时效（1 年-3 年），不适用 state-borrowing rule；（which
statute of limitations is applicable to a private suit）？ Whether the claim is time barred?
①“It is the usual rule that when Congress has failed to provide a statute of limitations for
a federal cause of action, a court “borrows” or “absorbs” the local time limitation
most analogous to the case at hand.” 但是存在例外（This rule is not without
exception）state borrowing requires that a court determine that an analogous federal
source truly affords a “closer fit” with the cause of action at issue than does any available
state-law source.
②本案满足例外情况
Section 9(e) of Exchange Act provide closer analogy to 10(b)”than available state statutes”
It is an integral element of a complex web of regulations.
Why the Court reject 5–year period contained in § 20A, added to the 1934 Act in 1988? -“The Insider Trading and Securities Fraud Enforcement Act of 1988 … focuses upon a
specific problem
Merck &
Co., Inc. v.
Reynolds
不同的时间节点；
被告发明一种止疼药，后
续发现有可能会造成心脑
血管（心脏病）方面的问
题
什么时候开始计算诉讼时效？when the limitations period
begins to run?
法院认为标准是 discovery 或者 contructive discovery
被告提出的标准并不是标准
本案事实 2001 年 11 月之前发生的事情不满足 discover
的标准
①对§ 1658(b)(1)“discovery”的解释
The limitations period in § 1658(b)(1) begins to run once
the plaintiff actually discovered or a reasonably diligent
plaintiff would have “discover[ed] the facts constituting the
violation”—whichever comes first. “discovery” occurs both
when a plaintiff actually **1788 discovers the facts and
when a hypothetical reasonably diligent plaintiff would
have discovered them.
问题：对于什么是 discovery 没有定义，只是认定什么
不是
Herman &
被告在 registration 的时候
Maclean v.
欺骗投资者
Huddlestowo
Cumulative nature of 10(b)
Action
4. PSLRA material – Hill
[竞合问题]1933 Act 补偿后是否阻碍 1934 Act 下的救
济？能否同时适用？The availability of an ex、ess
remedy under § 11 of the 1933 Act does not preclude
defrauded purchasers of registered securities from
maintaining an action under § 10(b) of the 1934 Act. Pp.
5. Class Action material – Cyr
Purpose of Class Action--Judicial economy
Johnson and Johnson Case
Vs. mass action
Individual; very limited numbers; every one has the identity of
SupMat, pp. 49-51A (FRCP, Rule 23 (Class Actions))