NCJ Number
131408
Date Published
1987
Length
7 pages
Annotation
This article discusses Rule 10b-5 of the Securities Act of 1934 in terms of the common law principle of reliance in order.
Abstract
Section 10b of the Securities Exchange Act of 1934 makes it unlawful to commit a fraudulent act in connection with the purchase or sale of a security. The Securities Exchange Commission adopted Rule 10b-5 to define what constitutes fraud. In determining elements of fraud, the Courts turned to common law, stating that reliance is a necessary element of 10b-5 violations. However proving reliance may present difficulties. In the Ute decision, violation was cited in a situation where material facts were not disclosed in an open market transaction. Because reliance by the plaintiff in a 10b-5 case must be reasonable, most courts have followed this reasonableness standard as exemplified in the Zobrist v. Coat-X, Inc. case. In the case of intentional misrepresentation, reasonable reliance is not necessary. Presumption of reliance is illustrated in Lipton v. Documentation, Inc. in which the plaintiff's injury was caused by purchase or sale of stock at a fraudulently induced market price. 25 notes