Legal Research & Case Analysis Flashcards

Ernst & Ernst v. Hochfelder established that a private damages action under Rule 10b-5 requires:

Answer: Scienter

Hochfelder held that private 10b-5 damages claims require intent to deceive, manipulate, or defraud.

Under TSC Industries v. Northway, an omitted fact is material if:

Answer: There is a substantial likelihood a reasonable investor would view it as significantly altering the total mix of information

TSC set the reasonable-investor 'total mix' standard for materiality.

Blue Chip Stamps v. Manor Drug Stores limited private Rule 10b-5 damages claims to:

Answer: Actual purchasers and sellers of securities

Blue Chip adopted the Birnbaum rule requiring plaintiffs to have actually bought or sold.

Central Bank of Denver v. First Interstate Bank held that private plaintiffs:

Answer: Cannot sue for aiding and abetting a Rule 10b-5 violation

The Court read Section 10(b) as not reaching aiders and abettors in private suits, though the SEC can pursue them by statute.

In Santa Fe Industries v. Green, the Court held that a breach of fiduciary duty by majority shareholders in a merger:

Answer: Is not a 10b-5 violation without deception or manipulation

Section 10(b) targets manipulation or deception, not corporate mismanagement alone.

Basic Inc. v. Levinson is best known for adopting which concept for private 10b-5 actions?

Answer: Fraud-on-the-market presumption of reliance

Basic allowed a rebuttable presumption of reliance in efficient markets and applied a probability/magnitude test to merger talks.

In SEC v. Zandford, a broker who sold a customer's securities and kept the proceeds was held to have acted:

Answer: In connection with the purchase or sale of securities

The Court read 'in connection with' broadly because the fraud and the sales were coincident.