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18.0 Securities--Definition of Recurring Terms

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Congress has enacted securities laws designed to protect the integrity of financial markets. The plaintiff claims to have suffered a loss caused by the defendant’s violation of certain of these laws.

There are terms concerning securities laws that have a specific legal meaning. The following definitions apply throughout these instructions, unless noted otherwise.

[A security is an investment of money in a commercial, financial or other business enterprise, with the expectation of profit or other gain produced by the efforts of others. Some common types of securities are [stocks,] [bonds,] [debentures,] [warrants,] [and] [investment contracts].]

The buying and selling of securities is controlled by the Securities Laws. Many of these laws are administered by the United States Securities and Exchange Commission ("SEC").

A "10b-5 Claim" is a claim brought under a federal statute, Section 10(b) of the Securities Exchange Act of 1934, which in essence prohibits acts of deception in connection with the purchase or sale of a security and in violation of rules and regulations that the SEC has the duty and power to issue. A corresponding SEC Rule, Rule 10b-5, prohibits the misrepresentation of material facts and the omission of material facts in connection with the purchase or sale of securities. A person or business entity who violates the securities laws, including Rule 10b-5, may be liable for damages caused by the violation.

[A misrepresentation is a statement of material fact that is false or misleading when it is made. [A statement may be misleading even if it is literally true if the context in which the statement was made caused the listener or reader to remain unaware of the actual state of affairs.]]

[An omission is a failure to disclose a material fact that had to be disclosed to prevent other statements that were made from being misleading.]

[A broker buys and sells securities for clients, usually for a commission. A broker can also be a dealer.]

[A dealer buys securities and resells them to clients. A dealer can also be a broker.]

[A controlling person is [an individual who] [company that] possesses the power to direct the management or policies of a business enterprise or of another person involved in the management or policy-making of the enterprise. A broker or a dealer may be a controlling person.]

[In connection with means that there was some nexus or relationship between the allegedly fraudulent conduct and the [sale] [purchase] of the securities.]

An instrumentality of interstate commerce includes the postal mails, e-mails, telephone, telegraph, telefax, interstate highway system, Internet and similar methods of communication and travel from one state to another within the United States.


Choose the bracketed portion(s) applicable to the claims in the case.

As to "controlling person," see Section 20(a) of the 1934 Act, 15 U.S.C. § 78f(a). See also No. 84 Employer-Teamster Joint Council Pension Trust Fund v. Am. W. Holding Corp., 320 F.3d 920, 945 (9th Cir.2003), for a discussion of controlling person liability.

As to "in connection with," the Ninth Circuit has noted:

To show a Rule 10b-5 violation, a private plaintiff must prove a "causal connection between a defendant’s misrepresentation and the plaintiff’s injury. . . ", a proximate relationship between the plaintiff’s injury and the purchase or sale of a security . . . [and] a connection between the defendant’s alleged misrepresentation and the security at issue . . . .

Levine v. Diamanthuset, Inc., 950 F.2d 1478, 1485–86 (9th Cir.1991) (citations omitted).

As to "instrumentality of interstate commerce," it is not necessary that interstate mailings or telephone calls, etc., be proved; intrastate use of such instrumentalities is sufficient to satisfy the jurisdictional requirements. Spilker v. Shayne Laboratories, Inc., 520 F.2d 523, 524 (9th Cir.1975).

As to "omission," the Ninth Circuit has held that Rule 10b-5 is violated by nondisclosure only when there is a duty to disclose. "‘[T]he parties to an impersonal market transaction owe no duty of disclosure to one another absent a fiduciary or agency relationship, prior dealings or circumstances such that one party has placed trust and confidence in the other.’" Paracor Finance v. General Electric Capital Corp., 96 F.3d 1151, 1157 (9th Cir.1996) (citations omitted). Paracor lists a number of factors used to determine whether a party has a duty to disclose. See id. The typical scenarios of investors bringing 10b-5 actions against issuers, promoters, underwriters or insiders seldom raise an issue as to whether the defendant had such a duty.