Opinion ID: 1424871
Heading Depth: 1
Heading Rank: 7

Heading: Fraud On Market Regulated by Federal Law

Text: When corporate directors impart information they must comport with the obligations imposed by both the Delaware law and the federal statutes and regulations of the United States Securities and Exchange Commission (SEC). [33] Historically, federal law has regulated disclosures by corporate directors into the general interstate market. [34] This Court has noted that in observing its congressional mandate the SEC has adopted a `basic philosophy of disclosure.' [35] Accordingly, this Court has held that there is no legitimate basis to create a new cause of action which would replicate, by state decisional law, the provisions of ... the 1934 Act. [36] In deference to the panoply of federal protections that are available to investors in connection with the purchase or sale of securities of Delaware corporations, this Court has decided not to recognize a state common law cause of action against the directors of Delaware corporations for fraud on the market. [37] Here, it is to be noted, the claim appears to be made by those who did not sell and, therefore, would not implicate federal securities laws which relate to the purchase or sale of securities. The historic roles played by state and federal law in regulating corporate disclosures have been not only compatible but complementary. [38] That symbiotic relationship has been perpetuated by the recently enacted federal Securities Litigation Uniform Standards Act of 1998. [39] Although that statute by its terms does not apply to this case, the new statute will require securities class actions involving the purchase or sale of nationally traded securities, based upon false or misleading statements, to be brought exclusively in federal court under federal law. The 1998 Act, however, contains two important exceptions: [40] the first provides that an exclusively derivative action brought by one or more shareholders on behalf of a corporation is not preempted; the second preserves the availability of state court class actions, where state law already provides that corporate directors have fiduciary disclosure obligations to shareholders. [41] These exceptions have become known as the Delaware carveouts. [42]