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Simple English definitions for legal terms

Rule 10b-5

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A quick definition of Rule 10b-5:

Rule 10b-5 is a law made by the Securities and Exchange Commission (SEC) to stop people from lying or cheating when they buy or sell stocks. It says that it's illegal for anyone to trick or deceive others by lying about important information or leaving out important facts when they're buying or selling stocks. If someone breaks this law, they can be sued by people who were hurt by their lies or the SEC can punish them with criminal charges. To prove someone broke this law, the person suing or the SEC has to show that the liar knew they were lying and that the lies caused people to lose money.

A more thorough explanation:

Rule 10b-5 is a regulation created by the Securities and Exchange Commission (SEC) to prevent securities fraud. It prohibits anyone from using fraudulent schemes or making false statements in connection with the purchase or sale of any security.

The SEC created Rule 10b-5 under Section 10(b) of the Exchange Act, which gives the SEC the power to regulate securities fraud. The rule states that it is illegal for anyone to:

  • Use any device, scheme, or artifice to defraud
  • Make any untrue statement of a material fact or omit to state a material fact
  • Engage in any act, practice, or course of business that would operate as a fraud or deceit upon any person

Rule 10b-5 applies to both public offerings and private placements.

Courts have interpreted Rule 10b-5 to create a private civil cause of action, which means that individuals can sue for damages if they have been harmed by securities fraud. However, in order to have standing to bring a lawsuit under Rule 10b-5, the plaintiff must have actually purchased or sold a security. They cannot bring a lawsuit if they only claim that a fraudulent misrepresentation caused them to forego purchasing or selling a security.

To prove a violation of Rule 10b-5, a plaintiff or the SEC must prove the following elements:

  • The individual misrepresented a material fact
  • The individual did so knowingly (scienter)
  • The plaintiff relied on the individual's material misrepresentation
  • The plaintiff suffered a loss

If the SEC establishes these elements, the individual may be criminally liable.

Suppose a company's CEO knows that the company is about to go bankrupt but tells investors that the company is doing well and encourages them to buy stock. The CEO's statement is a material misrepresentation because it is false and would influence an investor's decision to buy stock. If an investor relies on the CEO's statement and buys stock, but later suffers a loss when the company goes bankrupt, they may have a cause of action under Rule 10b-5.

Rule | Rule 144A

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MIAMI A
[] AromaticTroubledDormouse
20:55
How does one know if they are UR1 or UR2?
[] AromaticTroubledDormouse
20:56
CONGRATS MACAQUE!
TY
got a random stanford email and almost had a heart attack
ALSO CONGRATS!
Congrats1!
21:15
Miami A, yall I'm so excited I could cry.
21:15
Feel like I can finally stop holding my breath!! Whew!!!
[] baddestbunny
22:16
every time I get accosted by a strange man who follows me around because my male coworkers were too busy talking to walk me back to my car I get closer to saying we need to bring back traditional gender roles
Dkk
22:32
Nice! @Macaque
Dkk
22:32
@Aromatic, Have to guess.
Dkk
22:33
That sucks @Bunny do you have to go to the hospital?
[] baddestbunny
22:40
I said accosted not assaulted
23:35
guys. my notre dame address just went long is this good or bad
1a2b3c4d26z
23:37
Oooooo me too
23:37
omg is this good or bad
Dkk
23:47
Idk if gender roles are gunna fix that then.
23:49
it looks like most people who applied in october last cycle didn't get a decision until january... does it even mean anything that our addresses went long??
hows ED 2 compared to ED 1?
Dkk
0:10
No idea
windyMagician
0:34
reporting live to say my ndls address also went long
does it mean anything ^
Dkk
2:21
NDLS and Fordham took a very long time last year. It's good info for people to know.
[] baddestbunny
4:29
let’s get after it boys and girls
Dkk
5:21
I gtg to bed soon.
Dkk
5:22
Big day today. Gunna be a crazy one. I will sleep through the first half.
good morning lsd it is 5 am EST
also jazzy my ndls address went long ages ago i sadly do not think it means anything
my stanford address also went long LOL i think at most it's an indicator it's under review
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