Opinion ID: 318563
Heading Depth: 1
Heading Rank: 2

Heading: absolute liability jury instruction

Text: 6 Abrams argues that the trial court improperly instructed the jury as to the scope of duty imposed by clause (b) of rule 10b-5 which makes it unlawful for any person in connection with the sale of purchase of securities 'to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading . . ..' SEC Rule 10b-5(b), 17 C.F.R. 240.10b-5(b). The trial court instructed on the question of material misrepresentations as follows: 7 If you find that defendant made a material misrepresentation to plaintiffs in connection with the sale to plaintiffs of a promissory note or share of stock, the law is that defendant has violated the Federal securities laws even if you find that defendant did not know the falsity of the misrepresentation he made to plaintiffs. 8 The court's instruction would impose upon Abrams a duty to insure the truthfulness and reliability of the representations he has made. We reject such a broad construction since there is no indication that Congress, in passing section 10(b) of the Securities Exchange Act of 1934, or that the Securities and Exchange Commission, in issuing rule 10b-5 thereunder, intended that 'anyone should be an insurer against false or misleading statements made non-negligently or in good faith.' Kohn v. American Metal Climax, Inc., 458 F.2d 255, 280 (3d Cir. 1972) (Adams, J., concurring and dissenting). See List v. Fashion Park, Inc., 340 F.2d 457, 463 (2d Cir.), cert. denied, 382 U.S. 811, 86 S.Ct. 23, 15 L.Ed.2d 60 (1965) (purpose of rule 10b-5 is to qualify the rule of caveat emptor-- not to establish a scheme of investors' insurance). The instruction proposed by the White Group, objected to by Abrams and given by the trial court, imposes a liability without fault which we find to be contrary to the basic thrust of the statute and rule.