Also known as: securities laws · security law · securities-law · securities regulation · SEC law
Written by attorneys · grounded in primary & secondary sources — see below
A body of federal and state statutes, regulations, and judicial decisions that governs the issuance, purchase, sale, and trading of securities. The framework requires disclosure of material information, prohibits fraud and manipulation, and imposes liability on primary violators while limiting secondary liability theories such as aiding and abetting.
The SEC obtained a final judgment that Sterling Dynamics issued a materially false proxy statement. Sylvia Santos, a shareholder who sold her shares in reliance on the statement, later sued for damages in federal court. The court allowed Santos to invoke issue preclusion offensively to establish the falsity element because the company had a full and fair opportunity to litigate the issue in the enforcement action.
Basic Inc. entered preliminary merger talks with another company. Management issued statements denying any negotiations while the discussions continued at a high level. Shareholders who sold during this period sued under Rule 10b-5. The court applied the probability-magnitude test to determine whether the undisclosed talks were material to a reasonable investor.
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National Australian Bank shares traded only on the Australian exchange. U.S. investors purchased the shares abroad and later sued in federal court alleging misleading statements made in Australia. The court dismissed the claims, holding that Section 10(b) does not reach transactions that occur entirely outside the United States.
Central Bank of Denver served as indenture trustee for bonds issued by a public entity. The bank knew of but did not disclose material misstatements in the offering documents. Bondholders sued the bank for aiding and abetting a primary violation of Rule 10b-5. The court held that private plaintiffs cannot recover against aiders and abettors under the statute.
Executives at Texas Gulf Sulphur learned of a major mineral discovery. They purchased company stock before any public announcement. The court examined whether the information had been sufficiently disseminated to the market so that trading on it no longer violated the disclose-or-abstain rule.
An insider tipped a securities analyst about an impending corporate event. The analyst passed the information to clients who traded on it. The court analyzed whether the tippee could be liable only if the tipper breached a duty for personal benefit and the tippee knew of that breach.
Federal securities law is found primarily in statutes such as the Securities Act of 1933 and the Securities Exchange Act of 1934, together with SEC rules and regulations. Courts have also developed a body of interpretive case law, especially under the general antifraud provisions.
Yes. When the SEC first obtains a judgment establishing a securities violation, a private plaintiff may invoke that judgment offensively to establish the same issue, provided the application is fair to the defendant under all the circumstances.
Materiality is assessed under the probability-magnitude test, which balances the indicated probability that the event will occur against the anticipated magnitude of the event in light of the totality of company activity.
No. The statute does not reach foreign transactions. Its focus is on purchases and sales that occur in the United States.
No. The statute imposes liability only on primary violators. There is no private right of action for aiding and abetting.
…United States, 484 U. S. 19 (1987) (confidentiality). The Court also explicitly has defined a standard of materiality under the securities laws, see TSC Industries, Inc. v. Northway, Inc., 426 U. S. 438 (1976), concluding in the proxy-solicitation context that "[a]n omitted fact is material if there is a substantial likelihood that…