We don't write about the elements of Rule 10b-5 all that often. Rule 10b-5 is the small acorn that became the tall oak almost accidentally. This hasn't made everyone happy. The Supreme Court in Stoneridge essentially held that the prohibition on deceptive behavior did not extend to vendors because there never should have been a private right of action to begin with and it was time to draw a line in the sand over which no plaintiff would ever be allowed to step.
In fact, the breakthrough wasn't really the private right of action. It was the fraud on the market theory that dispensed with the need to show actual reliance. The fraud on the market theory gave a cause of action to every injured shareholder, whether or not they had any awareness of the fraud. With this theory, the era of mega-fraud suits was born.
Consistent with the Supreme Court's attitude in Stoneridge, other, lower courts, have also evidenced hostility towards actions under Rule 10b-5 and have used an assorted group of theories and approaches to cut them back. Most noticeably has been the Tellabs Excuse, an approach that took the Supreme Court's analysis in Tellabs (which was written by Justice Ginsburg and very favorable to investors) and somehow allow it to stand for the proposition that the standard for establishing scienter got even tougher.
But there are other methods. And in In re Williams Securities Litigation, a case decided in the 10th Circuit (that oversees Colorado, among other states), we have learned yet another method: A contorted interpretation of loss caustion. In the next post or two, we will discuss the case and its significance.