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2) Unfairness - inherent unfairness that results when a party takes advantage of such information knowing it is unavailable to person with whom he is dealing.
B.SECURITIES EXCHANGE ACT OF 1934 - IN GENERAL - the act superseded common law. Section 12 of the Act requires registration of any security traded on a national exchange, or any equity security (held by 500 or more persons) of a corp with assets exceeding $ 5 million.
C.SECTION 10 (B) AND RULE 10B-5 - section 10 (b) prohibits any manipulation or deception in the purchase or sale of any security, whether or not it's registered. Rule 10b-5 prohibits the use of the mails or other instrumentality of interstate commerce to defraud, misrepresent, or omit a material fact in connection with a purchase or sale of any security.
1.COVERED CONDUCT - rule 10b-5 applies to nondisclosure by dirs or officers, as well as to misrepresentations. It applies not only to insider trading but also to any person who makes a misrepresentation in connection with a purchase or sale of stock.
2.COVERED SECURITIES - rule 10b-5 applies to the purchase or sale of any security, registered or unregistered. a jurisdictional limitation requires that the violation must involve the use of some instrumentality of interstate commerce.
3.WHO CAN BRING SUIT UNDER 10B-5 - private plaintiffs and the SEC. Private plaintiffs must be either purchasers or sellers of security.
4.MATERIALITY--for rule 10b-5 to apply, the information misrepresented or omitted must be material (ie, a reasonable sh would consider it important in deciding whether to buy or to sell).
5.FAULT REQUIRED (SCIENTER) - a defendant is not liable under rule 10b-5 if he was without fault or merely negligent. The scienter requirement is satisfied by recklessness or an intent to deceive, mislead, or convey a false impression. Scienter is also required for injunctive relief.
a) Recklessness Defined:
1) D knew the hazard and proceeded nonetheless (Subjective test);
2) D proceeded despite what a reasonable person would perceive (objective test);
b) Recklessness Under PSLRA:
1) Knowing conduct - yields jointly and severally liable;
2) Non-knowing conduct (e.g., recklessness) - yields fair share (proportionate liability), found in accordance with special interrogatories.
6.CAUSATION AND RELIANCE - a plaintiff must prove that violation caused a loss (ie, he must establish reliance on the wrongful statement or omission). However, in omission cases, there is a rebuttable presumption of reliance once materiality is established.
a) Fraud On The Market - where securities are traded on a well-developed market (rather than in a face-to-face transaction), reliance on a misrepresentation may be shown by alleging reliance on the integrity of the market.
b) Face-to-Face Misrepresentations - a plaintiff can show act...
