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18.1 Securities—Rule 10b-5 Claim

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18.1 SECURITIES—RULE 10b-5 CLAIM

The plaintiff alleges that the defendant[s] defrauded [him] [her] [it] by [describe the plaintiff’s "10b-5" claim]. This is referred to as "the plaintiff’s 10b-5 claim."

On this claim, the plaintiff has the burden of proving each of the following elements by a preponderance of the evidence:

1. The defendant [[employed a device, scheme or artifice to defraud] [made an untrue statement of a material fact] [omitted a material fact necessary under the circumstances to keep the statements that were made from being misleading] [engaged in an act, practice or course of business that operated as a fraud or deceit]] in connection with the [purchase] [sale] of securities;

2. The defendant acted knowingly;

3. The defendant [used] [caused the use of] an [instrumentality of interstate commerce, such as mail or telephone] [facility of a national securities exchange] in connection with the [purchase] [sale] of securities, regardless whether the [instrumentality] [facility] itself was used to make an untrue statement or a material omission;

4. The plaintiff justifiably relied on [the defendant’s untrue statement of a material fact] [the defendant’s omission to state a necessary material fact] in [buying] [selling] securities; and

5. The defendant’s [conduct] [misrepresentation] [omission] caused the plaintiff to suffer damages.

If you find that the plaintiff has proved each of the above elements, your verdict should be for the plaintiff. If, on the other hand, you find that the plaintiff has failed to prove any of these elements, your verdict should be for the defendant.

Comment

See Instruction 18.0 (Securities—Definition of Recurring Terms) for definitions of "security," "misrepresentation," "omission," "in connection with," and "instrumentality of interstate commerce." National security exchanges include the New York Stock Exchange and the NASDAQ Stock Market.

See 15 U.S.C. § 78j(b) (unlawful to use deceptive device in connection with purchase or sale of a security) and 17 C.F.R. § 240.10b-5 (unlawful to use a device to defraud, to make an untrue statement of material fact, or to engage in a fraudulent act in connection with the purchase or sale of a security). Gray v. First Winthrop Corp., 82 F.3d 877, 884 (9th Cir.1996), confirms that the elements described in this instruction are required to prove a 10b-5 claim.

A defendant "makes" a statement if the defendant has ultimate authority over the statement, including its content and whether and how to communicate it. Janus Capital Group v. First Derivative Traders, 564 U.S. __, 131 S. Ct. 2296, 2302 (2011). The plaintiff must show that the defendant had control over the statement; a defendant’s significant involvement in the preparation of prospectuses containing untrue or misleading statements is not enough to show that the defendant "made" the statements. Id. at 2302-04.

Previously, these model instructions phrased the fourth element as requiring that "the plaintiff reasonably relied" on the misrepresentation. Several Ninth Circuit cases, however, use the phrase "justifiable reliance." See Gray, 82 F.3d at 884; Binder v. Gillespie, 184 F.3d 1059, 1063 (9th Cir.1999); Livid Holdings Ltd., v. Salomon Smith Barney, Inc., 416 F.3d 940, 950 (9th Cir.2005) ("If [Plaintiff] justifiably relied on Defendants’ misrepresentation about the stock sale and, in turn, bought [company] stock based on this reliance, it incurred damages from Defendants’ fraud.")

Approved 1/2012