COUNT III Fraud in Violation of Section 10(b) and Rule 10b-5 of the Exchange Act 33. The Commission realleges and incorporates paragraphs 1 through 26 of this Complaint. 34. From May 2009 through and including June 2009, the Defendants, directly and indirectly, by use of any means or instrumentality of interstate commerce, or of the mails, in connection with the purchase or sale of securities, knowingly, willfully or recklessly:
In order for Rule 10b-5 to be invoked, there must be intentional fraud or deceit by the party charged with the violation. Furthermore, for a private party to recover damages, they must be able to show that they were injured because they relied on the fraudulent claim. If the defendant had publicly made a fraudulent statement, every investor could sue if it could be shown that the statement affected the market as a whole - this is the "fraud on the market" theory enunciated by the Supreme Court in Basic Inc. v. Levinson.[5] This "fraud on the market" presumption of the plaintiff's reliance upon the deceit is only available in situations (like in Basic) where the security is traded on a well organized, and presumably efficient, market.
Various cases have held that a statement that "bespeaks caution" is sufficient to absolve the defendant of liability. If the defendant had prefaced remarks about the health of the company with a disclaimer that he might be wrong, then his subsequent statements can not be held against him. [edit] Enforcement
Both the SEC and private citizens can enforce the requirements of the rule through lawsuits. The defendant need not be the seller of the stock - any person who fraudulently induces a person to purchase any stock may be held liable.
What's funny is I invested the money that was paid to me as restitution from a truck that was stolen. How ironic.
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