Securities Law & Regulatory Compliance Flashcards

Under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, a private plaintiff must prove scienter, which means:

Answer: Intent to deceive or reckless disregard for the truth

Scienter under Rule 10b-5 requires proof of fraudulent intent or at minimum reckless disregard for the truth of statements.

The Private Securities Litigation Reform Act (PSLRA) of 1995 requires plaintiffs alleging securities fraud to:

Answer: Plead with particularity the facts giving rise to a strong inference of scienter

The PSLRA's heightened pleading standard requires plaintiffs to plead specific facts creating a strong inference of fraudulent intent.

In a securities class action, the 'fraud on the market' theory presumes reliance because:

Answer: Material misstatements are reflected in the stock's market price

Basic Inc. v. Levinson established that in efficient markets, public misstatements affect the price, so investors who trade at market price are presumed to have relied on the misstatement.

The statute of limitations for a private Section 10(b) securities fraud claim under 28 U.S.C. § 1658(b) is:

Answer: 2 years from discovery, no more than 5 years from violation

Section 1658(b) sets a 2-year discovery limitations period with a 5-year outer repose period for private securities fraud claims.

Under the Securities Act of 1933, Section 11 imposes liability on issuers and underwriters for material misstatements in a registration statement. Unlike Rule 10b-5 claims, Section 11 does NOT require plaintiffs to prove:

Answer: Scienter or reliance

Section 11 is a strict liability provision for issuers; plaintiffs need not prove scienter or reliance, only that there was a material misstatement in the registration statement.

A company's CFO selectively discloses material non-public information to a hedge fund before a public announcement. This most likely violates:

Answer: SEC Regulation FD (Fair Disclosure)

Regulation FD prohibits issuers from selectively disclosing material non-public information to certain market participants without simultaneous public disclosure.