In general terms, the rule 10b-5 prevents any kind of fraud associated with the purchase or sale of any bonds, stocks, etc. (security).
In order for a private plaintiff to get back the damages under rule 10b-5, some elements have to be present: the defendant’s fraudulent conduct, its connection to the purchase or sale of a security by the plaintiff, the interstate commerce, Reliance and Damages.
In order for a private plaintiff to get back the damages under rule 10b-5, some elements have to be present: the defendant’s fraudulent conduct, its connection to the purchase or sale of a security by the plaintiff, the interstate commerce, Reliance and Damages.
The Fraudulent Conduct is analyzed in two aspects:
- Materiality: which is the likelihood, that the statement or omission would be considered of significance by a reasonable investor
- Scienter: which is the defendant's intention to deceive, manipulate or defraud. Recklessness behavior tends to be sufficient culpability.
Regarding the connection between the fraudulent conduct and the the purchase or sale of a security by the plaintiff, it is important to note that even an nontrading defendant can be held liable. For instance, if a company intentionally publishes a deceiving press release.
The interstate commerce may be characterized simply by the use of telephone or mail.
The Damages are calculated using the difference between the price paid or received and the average share price in the 90-day period after the accurate information is published.
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