Opinion ID: 196921
Heading Depth: 2
Heading Rank: 2

Heading: Requirements of a 10b-5 Claim

Text: 20 Gross bases his fraud claims on alleged violations of § 10(b) of the Securities Exchange Act and the Securities and Exchange Commission's Rule 10b-5 promulgated thereunder. 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5. Together these provisions prohibit any person, directly or indirectly, from committing fraud in connection with the purchase or sale of securities. Id.; Shaw v. Digital Equip. Corp., 82 F.3d 1194, 1217 (1st Cir.1996). To state a cause of action under § 10(b) and Rule 10b-5, a plaintiff must plead, with sufficient particularity, that the defendant made a false statement or omitted a material fact, with the requisite scienter, and that the plaintiff's reliance on this statement or omission caused the plaintiff's injury. Shaw, 82 F.3d at 1217; see also San Leandro Emergency Medical Group Profit Sharing Plan v. Philip Morris Cos., 75 F.3d 801, 808 (2d Cir.1996). A misrepresented or omitted fact will be considered material only if a reasonable investor would have viewed the misrepresentation or omission as having significantly altered the total mix of information made available. Basic, Inc. v. Levinson, 485 U.S. 224, 232, 108 S.Ct. 978, 983, 99 L.Ed.2d 194 (1988). 21 By itself, however, Rule 10b-5, does not create an affirmative duty of disclosure. Indeed, a corporation does not commit securities fraud merely by failing to disclose all nonpublic material information in its possession. Roeder, 814 F.2d at 26 (citing Chiarella v. United States, 445 U.S. 222, 235, 100 S.Ct. 1108, 1118, 63 L.Ed.2d 348 (1980)); see also Shaw, 82 F.3d at 1202. The corporation must first have a duty to disclose the nonpublic material information before the potential for any liability under the securities laws emerges. Roeder, 814 F.2d at 26. Such a duty may arise if, inter alia, a corporation has previously made a statement of material fact that is either false, inaccurate, incomplete, or misleading in light of the undisclosed information. See id. at 27. 4 22 Thus, [w]hen a corporation does make a disclosure--whether it be voluntary or required--there is a duty to make it complete and accurate. Id. at 26. This, however, does not mean that by revealing one fact about a product, one must reveal all others that, too, would be interesting, market-wise, but means only such others, if any, that are needed so that what was revealed would not be 'so incomplete as to mislead.'  Backman v. Polaroid Corp., 910 F.2d 10, 16 (1st Cir.1990) (en banc ) (quoting SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 862 (2d Cir.1968) (en banc ), cert. denied, 394 U.S. 976, 89 S.Ct. 1454, 22 L.Ed.2d 756 (1969)). Furthermore, the fact that a company has reported accurately about past successes does not by itself burden the company with a duty to inform the market that present circumstances are less positive. Shaw, 82 F.3d at 1202; Serabian v. Amoskeag Bank Shares, Inc., 24 F.3d 357, 361 (1st Cir.1994).