To engage in any act, practice, or course of business operates or would operate as a fraud or deceit upon any person, In connection with the purchase or sale of any security. Elements (1) Standing Buyer or seller (Blue Chip Stamps) Only applies to private parties, not criminal prosecutions as in misapp insider trading cases (O’Hagan) (2) Materiality Same as TSC Indus/Basic/Texas Gulf Sulphur Always required element of and case π’s Almost always economic 5% rule – If 5% of revenues, assets, or sales would be affected. Management integrity almost always material Doesn’t include personal behavior (divorce) Can be material because of public reaction affect climate – change or censorship. (3) Causation Includes subsidiary issue of reliance Fraud on the Market Theory (4) Scienter (5) Damages Standing (1975) pg 353 Blue Chip Stamps was not a buyer or seller of stock Π Court said no standing must be a buyer or seller. – Causation (1972) pg 382 Affiliated Ute Citizens of Utah v. US Bank screwing over tribal members with their shares. Defense trying to say didn’t prove reliance π Proof of causation makes proof of reliance unnecessary. – Showed causation by showing omission of a material fact and a duty between the parties to disclose. Duty as the surrogate for reliance Materiality of the omission becomes a surrogate for causation. Does this only for non-disclosure cases? If an affirmative misrep, some cases have said must prove actual reliance. π TRANSACTION Causation Really reliance BUT FOR the fraud, would have acted – π differently. LOSS Causation
To engage in any act, practice, or course of business operates or would operate as a fraud or deceit upon any person, In connection with the purchase or sale of any security. Elements (1) Standing Buyer or seller (Blue Chip Stamps) Only applies to private parties, not criminal prosecutions as in misapp insider trading cases (O’Hagan) (2) Materiality Same as TSC Indus/Basic/Texas Gulf Sulphur Always required element of and π’s case Almost always economic – 5% rule If 5% of revenues, assets, or sales would be affected. Management integrity almost always material Doesn’t include personal behavior (divorce) Can be material because of public reaction – affect climate change or censorship. (3) Causation Includes subsidiary issue of reliance Fraud on the Market Theory (4) Scienter (5) Damages Standing Blue Chip Stamps (1975) pg 353 Π was not a buyer or seller of stock Court said no standing – must be a buyer or seller. Causation Affiliated Ute Citizens of Utah v. US (1972) pg 382 Bank screwing over tribal members with their shares. Defense trying to say π didn’t prove reliance – Proof of causation makes proof of reliance unnecessary. Showed causation by showing omission of a material fact and a duty between the parties to disclose. Duty as the surrogate for reliance Materiality of the omission becomes a surrogate for causation. Does this only for non-disclosure cases? If an affirmative misrep, some cases have said π must prove actual reliance. TRANSACTION Causation Really reliance – BUT FOR the fraud, π would have acted differently. LOSS Causation
Corporations_Outline_Scott_2010.docx