Distributed throught the securities laws and regulations are antifraud rules. These rules prohibit any statement "which, at the time and under the circumstances under which it is made, is false or misleading with respect to any material fact" (SEC rule 14a-9(a)).The rules also proibit any statement, written or oral, "which omits to state any material fact necessary in order to make the statments therein not false or misleading." The antifraud rules are catchalls. Thus, an issuer of securities who complies with an item-and-answer SEC form may still run afoul of the applicable antifraud rule if there exist a material ommission or misleading statements. To some uncertain extent, the anti-fraud rules are also intended to relax somewhat the strict common law state fraud rules that otherwise might apply to a plaintiff's case.
Some federal antifraud rules are statutory. The Securities Exchange Act of 1934 section 14(a)
- Rule 10b-5 - is a regulation the SEC adopted in 1943 pursuant to powers granted the Commission under section 10(b) of the Securities Exchange Act. The SEC and private plaintiffs have developed the federal insider trading prohibition from this opaque rule but its coverage is much broader. Rule 10b-5 prohibits material omissions or misleading statements in any form, whether in merger documents, brokerage research reports, or even face-to-face dealings in the shares of a closely held corporation, as the rule applies to omission or misleading statements "in connection with the purchase or sale of any security."