Securities Fraud. Rule 10b-5 SFCA: circularity Plaintiff standing (and lead counsel) “In connection with” requirement. (last updated 21 Mar 13). Securities Exchange Act of 1934. Section 10 -- Manipulative and Deceptive Devices
Plaintiff standing (and lead counsel)
“In connection with” requirement
(last updated 21 Mar 13)
“In 1987 [Zandford] persuaded William Wood, an elderly man in poor health, to open a joint investment account for himself and his mentally retarded daughter. … [T]he stated investment objective … were “safety of principal and income.” … The Woods entrusted him with $419,255. Before Mr. Wood’s death in 1991, all of that money was gone.”
SEC v. Zandford (US 2002) (Stevens, J)
Press Release 10/15/03“Netflix ended the third quarter of 2003 with approximately 1,291,000 total subscribers, up 144,000 or 13% sequentially.
“During the quarter Netflix acquired 383,000 new trial subscribers, a 38% year-over-year increase from the 277,000 new trial subscribers acquired in the third quarter of 2002 …”
Press Release 6/1/04Netflix has restated its financial information to reflect changes in revenues and earnings for the third and fourth quarters of 2003. This restatement corrects improper information about the number of new subscribers. Management does not, however, believe that these changes detract from a positive outlook for the company …
The longstanding acceptance of the Birnbaum rule by the courts, coupled with Congress’ failure to reject Birnbaum’s reasonable interpretation of the wording of § 10(b), wording which is directed toward injury suffered “in connection with the purchase or sale” of securities, argues significantly in favor … of the Birnbaum rule.
Blue Chip Stamps v. Manor Drug Stores (US 1975) (Rehnquist, J)
Lead plaintiff - PSLRA
Univ of Arizona
Appointment of “lead plaintiff”
Not later than 90 days after the date on which a notice [of class action] the court shall consider any motion made by a purported class member in response to the notice, … and shall appoint as lead plaintiff the member or members of the purported plaintiff class that the court determines to be most capable of adequately representing the interests of class members (hereafter in this paragraph referred to as the "most adequate plaintiff")
Who is “lead plaintiff”?
…the court shall adopt a presumption that the most adequate plaintiff in any private action arising under this title is the person or group of persons that--
The presumption described in subclause (I) may be rebutted only upon proof by a member of the purported plaintiff class that the presumptively most adequate plaintiff--
Selection of lead counsel
The most adequate plaintiff shall, subject to the approval of the court, select and retain counsel to represent the class.
Restrictions on professional plaintiffs
Except as the court may otherwise permit, consistent with the purposes of this section, a person may be a lead plaintiff, or an officer, director, or fiduciary of a lead plaintiff, in no more than 5 securities class actions brought as plaintiff class actions pursuant to the Federal Rules of Civil Procedure during any 3-year period.
“Rule 10b-5 is violated whenever assertions are made, as here, in a manner reasonably calculated to influence the investing public -- eg, by means of the financial media, if such assertions are false and or misleading are so incomplete so as to mislead.”
SEC v. Texas Gulf Sulphur
(2d Cir 1968) (Friendly, J)
Blue Chip Stamps (US 1975)
* * *
“The SEC has consistently adopted a broad reading of “in connection with the purchase or sale of any security” [broker who accepts $, but not intending to deliver or sells intending to misappropriate]”
SEC v. Zandford (US 2002)
Section 10(b) says the SEC
can promulgate rules. Can
SEC interpret statute?
See Rule 10b-18