Daniel A. McLaughlin
Some recent decisions have treated the issue of liability under Securities Exchange Act Rule lOb-5(a) or Rule lOb-5(c) as if it were a novel or unsettled question of federal securities law. At this writing, a pending appeal in the Ninth Circuit is considering a standard proposed by the SEC for “scheme” liability under those subparts of Rule 1Ob-5 where the defendant neither spoke nor owed a duty to speak but instead engaged in business transactions that were misreported by the issuer. Similar theories of liability have already been rejected by the Second and Eighth Circuits. This article draws on the U.S. Supreme Court’s Section 10(b) cases, recent federal appellate decisions, and precedents involving other rules adopted under Section 10(b) to explain that existing precedent already compels the conclusion that liability under any subpart of Rule 10b-5 requires a misrepresentation, a duty to disclose, or a manipulative transaction in the issuer’s securities.