Nov 4, 2009
What Antifraud Rules apply to securities transactions?
Rule 10b-5 was promulgated under the Securities Exchange Act of 1934 (the statutory scheme regulating exchanges, requiring periodic disclosure by public companies, such as Form 10-Ks, and establishing guidelines for other activities such as shareholder communications and tender offers). It is a broad provision prohibiting, in connection with the purchase or sale of any security, any fraudulent behavior, including making material misstatements or omissions. Although this is generally viewed as a prohibition on conscious deception, it also extends misstatements resulting from recklessness (e.g., making no effort to ascertain the truth of an assertion, even when it was clear a minimal investigation would have been sufficient).
