Chapter 16 - § 16.3 • GENERAL LIABILITY PROVISIONS OF § 10

• Jurisdiction: Colorado

§ 16.3 • GENERAL LIABILITY PROVISIONS OF § 10

Section 10 of the 1934 Act proscribes a number of actions by brokers, sellers, and issuers of securities. Section 10(a) prohibits short sales of securities under certain conditions, and § 10(b) prohibits fraudulent practices in connection with a purchase or sale of securities. The SEC has adopted numerous rules interpreting — and, by some theories, expanding upon — the statutory language.

Rule 10b-5 is the most litigated rule under the securities acts. It prohibits fraud, deceit, acts or practices that operate as a fraud, and untrue statements or misleading omissions.

Many public offerings are "all or none" or "minimum-maximum" offerings. Rule 10b-9 prohibits any representations that securities are being offered on an "all or none" or "part or none" basis unless prompt refunds are made to purchasers if the represented number of securities are not timely sold. Shares offered publicly must be placed in bona fide transactions and must be fully paid for.⁵

Rule 10b-18 was adopted in 1982 (SEC Release No. 33-6434, 34-19244) to provide a safe harbor from liability for manipulation under §§ 9(a)(2) and 10(b) of the 1934 Act for purchases of an issuer's common stock by that issuer or an affiliate. Rule 10b-18 is a safe harbor, not a mandatory rule. Although Rule 10b-18 does not specifically require an announcement of the proposed repurchase, in the adopting release the SEC concluded that appropriate announcement was probably required under other 1934 Act principles. Rule 102 of Regulation M prohibits an issuer from repurchasing shares while concurrently engaged in a distribution of its securities. In one case,⁶ however, the SEC staff granted an exception from Rule 102...