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

Heading: Supp. at 681-682

Text: 17 See, e.g., Schoenbaum v. Firstbrook, 268 F.Supp. 385 (S.D.N.Y.1967), aff'd 405 F.2d 200 (2d Cir.), modified, 405 F.2d 215 (2d Cir. 1968), cert. denied, 395 U.S. 906, 89 S.Ct. 1747, 23 L.Ed.2d 219 (1969). That court said: The fraud involved in buying or selling on the basis of inside information is based first on the user's relationship with the corporation being such as to allow him access to information intended only for a corporate purpose-- not for his personal benefit. For the instant, we shall assume this to have been met. Secondly, the fraud rests '   upon the inherent unfairness involved where a party takes advantage of such information knowing it is unavailable to those with whom he is dealing.' Cady, Roberts & Co., 40 S.E.C. 907, 912 (1961). Where, as plaintiff alleges here, both parties had full knowledge, there is no fraud upon either party resulting from the use of this knowledge. 268 F.Supp. at 395 18 Affiliated Ute Citizens v. United States, 406 U.S. 128, 152-153, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1972). See 2 A. Bromberg, Securities Law: Fraud 8.5(584), at 208.46-.49 (1971) for a history of the role benefit or expectation of benefit has played in 10b-5 cases where the parties were not in privity of contract 19 In Drake v. Thor Power Tool Co., 282 F.Supp. 94 (N.D.Ill.1967), the court, holding that plaintiffs had stated a good cause of action under rule 10b-5 against an independent auditing firm that had approved false statements in the corporation's financial statements, said: The alleged misstatements were intended for public information and to induce the public to buy securities. The defendant, in certifying financial statements, directed its activities toward investors . . .. The purpose of the financial statements is to inform the man on the street and the underlying policy of the Securities and Exchange Acts and of Rule 10b-5 is to assure that he can have truthful information in buying securities . . .. Moreover, the defendants have set themselves up to be independent certified public auditors. As such, they have assumed a peculiar relationship with the investing public. As accountants, the defendant clearly cannot be immunized from suit. . . . .nde The allegations may be sustained as either an intentional misrepresentation or as a negligent misrepresentation. Id. at 104-105. Implicit in the court's statement is the notion that the defendants should be held to a high standard since they were aware that the investing public would rely upon the accuracy of their statements. 20 Compare O'Neill v. Maytag, 339 F.2d 764 (2d Cir. 1964) (Reexchange of shares between two airlines at ratio unfavorable to plaintiffs' corporation upon order of CAB did not result in 10b-5 liability for board of directors, even though the transaction was done to perpetuate the board in control) with Ruckle v. Roto American Corp., 339 F.2d 24 (2d Cir. 1964) (Directors' active participation in the issuance and sale of new shares to perpetuate the board in control resulted in liability under rule 10b-5) and Globus, Inc. v. Jaroff, 266 F.Supp. 524 (S.D.N.Y.1967) (Good cause of action under 10b-5 stated where material facts were omitted by directors in notice of shareholders meeting and directors had actively participated in plan to issue new stock that would have greatly benefited them). See Mann, supra Note 3, at 1219-20