10b5

Rule 10b-5 is a key provision under the Securities Exchange Act of 1934, promulgated by the U.S. Securities and Exchange Commission. The rule prohibits fraud in connection with the purchase or sale of any security. It makes unlawful to employ any device, scheme, or artifice to defraud; to make any untrue statement of a material fact or to omit a material fact necessary to make statements not misleading; or to engage in any act or practice that operates as a fraud or deceit upon any person. The rule applies to interstate commerce and to participants in securities markets, regardless of whether they are insiders or outsiders.

Elements and scope: A typical 10b-5 claim requires a material misrepresentation or omission, scienter (a wrongful or intent-to-defraud state of mind), a connection with the purchase or sale of a security, reliance, causation, and damages. The rule covers both misstatements and omissions, and it reaches a range of conduct including manipulation and insider trading. It has been invoked against corporate insiders, tippees, and others who exploit nonpublic information or engage in deceptive practices.

Enforcement and impact: The SEC enforces Rule 10b-5 in its civil actions, and private plaintiffs may sue under Section 10(b) of the Act. The rule has shaped the modern understanding of securities fraud, including theories such as insider trading and the misappropriation theory. The fraud-on-the-market theory, recognized in Basic Inc. v. Levinson, allows reliance on public misstatements by investors in efficient markets in certain circumstances.

Note: Rule 10b-5 remains a central instrument in securities fraud law, with ongoing developments through court rulings that refine issues of materiality, scienter, and proof of damages.