[1] The rule prohibits any act or omission resulting in fraud or deceit in connection with the purchase or sale of any security.
"[2] "Rule 10b-5: Employment of Manipulative and Deceptive Practices": To establish a claim under Rule 10b-5, plaintiffs (including the SEC) must show (i) Manipulation or Deception (through misrepresentation and/or omission); (ii) Materiality; (iii) "In Connection With" the purchase or sale of securities, and (iv) Scienter.
Private plaintiffs have the additional burden of establishing (v) Standing - Purchaser/Seller Requirement; (vi) Reliance (presumed if there was an omission); (vii) Loss Causation; and (viii) Damages.
Both the "bespeaks caution" doctrine and the safe harbor provisions of the Private Securities Litigation Reform Act offer protection for forward-looking statements if they are accompanied by cautionary language identifying specific factors that could cause actual results to differ materially from those in the forward-looking statement and may be sufficient to absolve a defendant of liability.
[4] However, in Iowa Public Employees' Retirement System v. MF Global Ltd., the US Second Circuit Court of Appeals overturned a decision by the District Court for the Southern District of New York, ruling that the "bespeaks caution" defense to securities disclosure claims applies exclusively to forward-looking statements and not to characterizations that communicate present or historical fact.
In 1997, the Supreme Court has embraced a "misappropriation" theory of omissions, holding in United States v. O'Hagan[8] that misappropriating confidential information for securities trading purposes, in breach of a duty owed to the source of that information, gives rise to a duty to disclose or abstain.
In Blue Chip Stamps v. Manor Drug Stores, the Supreme Court held that only purchasers or sellers of securities may bring a private action for damages under Rule 10b-5; however any member of the public may provide information to the SEC regarding possible violations of the federal securities laws.
In March 2023, in the first-ever indictment for insider trading based on an executive's use of a Rule 10b5-1 plan, the Department of Justice charged Terren Peizer with one count of engaging in a securities fraud scheme and two counts of securities fraud for insider trading.
[13] The SEC alleged that Peizer sold $20 million of Ontrak Inc. stock while he was in possession of material nonpublic negative information.