AND · 15usc78j:scheme
Rule 10b-5(a)/(c) can reach a person who is not the maker of a statement; Lorenzo as applied in Malouf is an SEC scheme-liability holding. It does not create private aiding-and-abetting liability or dispense with the private plaintiff's separate reliance requirement. Insider misappropriation requires a duty/trust relationship and deceptive use of material nonpublic information, not possession alone.
Exact element source
any manipulative or deceptive device or contrivanceSource:
docroot/ir/usc/title15.jsonl#title15_sec78j; Unicode character offsets [907:958] (end exclusive); SHA-256 8ceaded2a57e5b49e22a4766033c8899ebfd730667700a031b8db7f80ea91e32.All variants
| Variant | Description | Merits instance blocks | Distinct cases | Example cases (up to 3 per group) |
|---|---|---|---|---|
| commission-diversion/concealed-source-of-client-rebate | 1 Satisfied 1; not satisfied 0; excluded context 0 | 1 | /f3d/935/0721-01 — United States Court of Appeals for the Ninth Circuit · 2019 — satisfied | |
| commission-diversion/foreign-nominee-recruiters | 1 Satisfied 1; not satisfied 0; excluded context 0 | 1 | /f3d/935/0721-01 — United States Court of Appeals for the Ninth Circuit · 2019 — satisfied | |
| conflict-concealment/bond-routing-and-firm-misstatements | 1 Satisfied 1; not satisfied 0; excluded context 0 | 1 | /f3d/933/1248-01 — United States Court of Appeals for the Tenth Circuit · 2019 — satisfied | |
| deceptive-conduct/backdated-supply-contracts | 0 Satisfied 0; not satisfied 0; excluded context 1 | 0 | No counted merits examples Excluded context examples: /us/552/0148-01 — Supreme Court of the United States · 2008 — rule-announced/merits | |
| insider-misappropriation | Afriyie addresses duty-based misuse of confidential transaction information; full tipper/tippee catalogue is outside scope. | 0 Satisfied 0; not satisfied 0; excluded context 0 | 0 | No annotation uses in this snapshot |
| insider-misappropriation/employment-confidentiality | 0 Satisfied 0; not satisfied 0; excluded context 1 | 0 | No counted merits examples Excluded context examples: /f3d/929/0063-01 — United States Court of Appeals for the Second Circuit · 2019 — rule-announced/procedural | |
| knowing-dissemination | Lorenzo permits liability under (a)/(c) for knowing dissemination despite lack of maker status under (b). | 0 Satisfied 0; not satisfied 0; excluded context 0 | 0 | No annotation uses in this snapshot |
How courts decided this element
| Case | Element | Holding and scope | Variant | Exact source quotations |
|---|---|---|---|---|
| /f3d/929/0063-01 — United States Court of Appeals for the Second Circuit · 2019 | Fraudulent scheme or deceptive course of business | not_reached Excluded from merits counts rule-announced / procedural count: Count One securities fraud; subject: count=Count One securities fraud The confidentiality agreement defeats prejudice on the challenged duty instruction. The court does not newly decide sufficiency of every misappropriation element; the instruction ruling is not a merits instance. | insider-misappropriation/employment-confidentiality | The next morning, on January 28, Afriyie accessed the ADT and Apollo research folders on MSD's shared drive. After doing so, he purchased his first ADT call option. That afternoon, MSD added ADT to its list of "restricted" securities, and Afriyie received an email to this effect. Taken together, the restriction emails Afriyie received informed him that Apollo was planning to acquire ADT. The next day, Afriyie purchased an additional 35 ADT call options. On February 2, although he was not assigned to work on the ADT project, Afriyie accessed documents specific to the Apollo-ADT deal stored on MSD's shared drive. He subsequently purchased over 2,000 additional ADT call options over the course of the ensuing two weeks.Source: docroot/ir/caselaw/f3d_929.jsonl#/f3d/929/0063-01; Unicode character offsets [2322:3047] (end exclusive); SHA-256 dacb34ef671a500f5fe9fe2db4716722b74b4cd01340dbfc18b443985f46e723.Afriyie does not dispute that on his first day of employment with MSD, he signed a confidentiality agreement.Source: docroot/ir/caselaw/f3d_929.jsonl#/f3d/929/0063-01; Unicode character offsets [7928:8037] (end exclusive); SHA-256 dacb34ef671a500f5fe9fe2db4716722b74b4cd01340dbfc18b443985f46e723.Under Chestman , "a person violates [ 17 C.F.R. § 240.10b-5 ] when he misappropriates material nonpublic information in breach of a fiduciary duty or similar relationship of trust and confidence and uses that information in a securities transaction."Source: docroot/ir/caselaw/f3d_929.jsonl#/f3d/929/0063-01; Unicode character offsets [5947:6197] (end exclusive); SHA-256 dacb34ef671a500f5fe9fe2db4716722b74b4cd01340dbfc18b443985f46e723.Accordingly, any error in the district court's instruction did not result in prejudice; viewing the charge actually given as a whole, see United States v. Feliciano , 223 F.3d 102, 116 (2d Cir. 2000), the outcome of the trial would have been the same had Afriyie received the instruction he sought.Source: docroot/ir/caselaw/f3d_929.jsonl#/f3d/929/0063-01; Unicode character offsets [8359:8657] (end exclusive); SHA-256 dacb34ef671a500f5fe9fe2db4716722b74b4cd01340dbfc18b443985f46e723. |
| /f3d/933/1248-01 — United States Court of Appeals for the Tenth Circuit · 2019 | Fraudulent scheme or deceptive course of business | satisfied Counted merits instance applied / merits basis: proved; party: Dennis Malouf; theory: Rule 10b-5(a) and (c); subject: party=Dennis Malouf; theory=Rule 10b-5(a) and (c) The agency found a deceptive course of conduct: directing trades to finance sale payments while leaving the firm's affirmative independence claims uncorrected. Non-maker status does not dispose of the (a)/(c) charge. | conflict-concealment/bond-routing-and-firm-misstatements | In 2007, Raymond James became concerned about the conflict of interest between (1) Mr. Malouf's role at its branch office and (2) his role at UASNM. These concerns led Raymond James to ask Mr. Malouf to choose between the two roles. Mr. Malouf opted to remain at UASNM and sold his Raymond James branch to Mr. Maurice Lamonde for roughly $1.1 million, to be paid in installments based on the Raymond James branch's collection of securities-related fees.Source: docroot/ir/caselaw/f3d_933.jsonl#/f3d/933/1248-01; Unicode character offsets [1059:1512] (end exclusive); SHA-256 8307068e646fa9d05edcdf23da91535cb68d8d204fa5d736d8ace2c4bf10b221.To facilitate the installment payments, Mr. Malouf routed bond trades on behalf of his UASNM clients through the Raymond James branch. This way, Mr. Lamonde would receive enough in commissions to allow him to pay what he owed Mr. Malouf.Source: docroot/ir/caselaw/f3d_933.jsonl#/f3d/933/1248-01; Unicode character offsets [1513:1750] (end exclusive); SHA-256 8307068e646fa9d05edcdf23da91535cb68d8d204fa5d736d8ace2c4bf10b221.Mr. Malouf later acknowledged that his financial arrangement with Mr. Lamonde had created a conflict of interest that should have been disclosed. But Mr. Malouf did not disclose that arrangement to UASNM's chief compliance officer or the outside consultant. Because these individuals did not know the details of the Malouf-Lamonde arrangement, UASNM not only failed to disclose Mr. Malouf's conflict of interest but also boasted that (1) UASNM's employees were not receiving any commissions or fees from the Raymond James branch and (2) UASNM was providing impartial advice untainted by any conflicts of interest.Source: docroot/ir/caselaw/f3d_933.jsonl#/f3d/933/1248-01; Unicode character offsets [2646:3259] (end exclusive); SHA-256 8307068e646fa9d05edcdf23da91535cb68d8d204fa5d736d8ace2c4bf10b221.While UASNM was boasting of its impartiality, Mr. Malouf was participating in deciding what UASNM would disclose. He acknowledged that he had reviewed some of the Forms ADV for what to disclose and had at least some familiarity with the contents of the website. But he took no steps to remedy UASNM's misstatements or to disclose his own conflict of interest.Source: docroot/ir/caselaw/f3d_933.jsonl#/f3d/933/1248-01; Unicode character offsets [3260:3619] (end exclusive); SHA-256 8307068e646fa9d05edcdf23da91535cb68d8d204fa5d736d8ace2c4bf10b221.The Court expressly held that a person could incur liability under these provisions when the conduct involves another person's false or misleading statement.Source: docroot/ir/caselaw/f3d_933.jsonl#/f3d/933/1248-01; Unicode character offsets [17408:17565] (end exclusive); SHA-256 8307068e646fa9d05edcdf23da91535cb68d8d204fa5d736d8ace2c4bf10b221.Given these definitions, we conclude that the SEC did not err in finding a fraudulent device, scheme, or artifice to defraud.Source: docroot/ir/caselaw/f3d_933.jsonl#/f3d/933/1248-01; Unicode character offsets [20900:21025] (end exclusive); SHA-256 8307068e646fa9d05edcdf23da91535cb68d8d204fa5d736d8ace2c4bf10b221. |
| /f3d/935/0721-01 — United States Court of Appeals for the Ninth Circuit · 2019 | Fraudulent scheme or deceptive course of business | satisfied Counted merits instance applied / merits basis: law; party: Hui Feng; count: fraud against regional centers; subject: party=Hui Feng; count=fraud against regional centers Foreign family nominees and the controlled Hong Kong entity concealed that the unregistered U.S. lawyer performed recruitment and received the commission. The appellate court upheld this scheme separately from client omissions. | commission-diversion/foreign-nominee-recruiters | When told by some regional centers that they could only pay commissions to overseas recruiters, Feng responded that he had referral partners in China who were finding investors. He entered into marketing agreements in which he promised to relay the commissions to those individuals. He also arranged agreements that were directly between the regional centers and the individuals. The referral partners included Feng's wife, mother, and mother-in-law. Feng described these individuals in his deposition testimony as his "nominees," whose role was to be "just a surrogate to receive the money." They did not do the work of recruiting investors-Feng did that himself. After the regional centers paid commissions to the individuals, they transferred the funds to Feng. Feng asserts that the regional centers only asked for a foreign contact to pay and did not "care" who it was.Source: docroot/ir/caselaw/f3d_935.jsonl#/f3d/935/0721-01; Unicode character offsets [4809:5683] (end exclusive); SHA-256 b81c8876a5a14d5352088d7f264360b11de8f12772784fec962b58479a41f19b.But, deceptive conduct that is not "inherently unlawful" may form the basis of a scheme to defraud.Source: docroot/ir/caselaw/f3d_935.jsonl#/f3d/935/0721-01; Unicode character offsets [39055:39154] (end exclusive); SHA-256 b81c8876a5a14d5352088d7f264360b11de8f12772784fec962b58479a41f19b.The district court addressed the fraud against the regional centers only as a scheme to defraud, not as a material omission.Source: docroot/ir/caselaw/f3d_935.jsonl#/f3d/935/0721-01; Unicode character offsets [38539:38663] (end exclusive); SHA-256 b81c8876a5a14d5352088d7f264360b11de8f12772784fec962b58479a41f19b.We accordingly affirm the district court's finding that Feng engaged in securities fraud in violation of Section 17(a) and Section 10(b).Source: docroot/ir/caselaw/f3d_935.jsonl#/f3d/935/0721-01; Unicode character offsets [39533:39670] (end exclusive); SHA-256 b81c8876a5a14d5352088d7f264360b11de8f12772784fec962b58479a41f19b. |
| /f3d/935/0721-01 — United States Court of Appeals for the Ninth Circuit · 2019 | Fraudulent scheme or deceptive course of business | satisfied Counted merits instance applied / merits basis: law; party: Hui Feng; count: fraud against clients; subject: party=Hui Feng; count=fraud against clients Affirmative concealment of the source of rebates is separately analyzed under (a)/(c). Mere existence of a discount is not the fraud. | commission-diversion/concealed-source-of-client-rebate | Approximately 20 percent of Feng's clients asked him to seek a reduced administrative fee from the regional centers. In those instances, Feng negotiated with regional centers and facilitated contracts between those regional centers and his clients for a rebate of a portion of the administrative fee. Feng did not disclose to these clients, however, that the administrative fees helped to fund his commissions, nor that the regional centers offset the clients' administrative fee rebate with a reduction in the commissions to which he was contractually entitled. Indeed, Feng asked the regional centers not to inform the clients about either fact. Feng explained in his deposition that he wanted to create the appearance to his clients that he was advocating on their behalf with the regional center and also to "keep as much of the marketing fee as possible"-that is, his commission-and to avoid further "haggl[ing]" with clients who might ask Feng to rebate more of the commission.Source: docroot/ir/caselaw/f3d_935.jsonl#/f3d/935/0721-01; Unicode character offsets [8366:9349] (end exclusive); SHA-256 b81c8876a5a14d5352088d7f264360b11de8f12772784fec962b58479a41f19b.The fraudulent conduct was his scheme to make the rebate appear to come from his advocacy on behalf of the client, while concealing the relationship between the reduction and his undisclosed commission.Source: docroot/ir/caselaw/f3d_935.jsonl#/f3d/935/0721-01; Unicode character offsets [39330:39532] (end exclusive); SHA-256 b81c8876a5a14d5352088d7f264360b11de8f12772784fec962b58479a41f19b. |
| /us/552/0148-01 — Supreme Court of the United States · 2008 | Fraudulent scheme or deceptive course of business | not_reached Excluded from merits counts rule-announced / meritsThe Court rejects a categorical statements-only restriction, then disposes of the private claim on reliance. It expressly declines to evaluate the transaction-connection requirement. | deceptive-conduct/backdated-supply-contracts | So that Arthur Andersen would not discover the link between Charter’s increased payments for the boxes and the advertising purchases, the companies drafted documents to make it appear the transactions were unrelated and conducted in the ordinary course of business. Following a request from Charter, Scientific-Atlanta sent documents to Charter stating — falsely—that it had increased production costs. It raised the price for set-top boxes for the rest of 2000 by $20 per box. As for Motorola, in a written contract Charter agreed to purchase from Motorola a specific number of set-top boxes and pay liquidated damages of $20 for each unit it did not take. The contract was made with the expectation Charter would fail to purchase all the units and pay Motorola the liquidated damages.Source: docroot/ir/caselaw/us_552.jsonl#/us/552/0148-01; Unicode character offsets [3458:4244] (end exclusive); SHA-256 854d7d302812e017c170afe5ca783eb9bff59da2a6e8cb45147e391cf8970a75.If this conclusion were read to suggest there must be a specific oral or written statement before there could be liability under § 10(b) or Rule 10b-5, it would be erroneous. Conduct itself can be deceptive, as respondents concede.Source: docroot/ir/caselaw/us_552.jsonl#/us/552/0148-01; Unicode character offsets [11329:11560] (end exclusive); SHA-256 854d7d302812e017c170afe5ca783eb9bff59da2a6e8cb45147e391cf8970a75. |
Court interpretations
interpretation
The Court expressly held that a person could incur liability under these provisions when the conduct involves another person's false or misleading statement.
/f3d/933/1248-01 — United States Court of Appeals for the Tenth Circuit · 2019
The Court expressly held that a person could incur liability under these provisions when the conduct involves another person's false or misleading statement.Source:
docroot/ir/caselaw/f3d_933.jsonl#/f3d/933/1248-01; Unicode character offsets [17408:17565] (end exclusive); SHA-256 8307068e646fa9d05edcdf23da91535cb68d8d204fa5d736d8ace2c4bf10b221.Rule 10b-5(a)/(c) can reach a person who is not the maker of a statement; Lorenzo as applied in Malouf is an SEC scheme-liability holding. It does not create private aiding-and-abetting liability or dispense with the private plaintiff's separate reliance requirement. Insider misappropriation requires a duty/trust relationship and deceptive use of material nonpublic information, not possession alone.
interpretation
Under Chestman , "a person violates [ 17 C.F.R. § 240.10b-5 ] when he misappropriates material nonpublic information in breach of a fiduciary duty or similar relationship of trust and confidence and uses that information in a securities transaction."
/f3d/929/0063-01 — United States Court of Appeals for the Second Circuit · 2019
Under Chestman , "a person violates [ 17 C.F.R. § 240.10b-5 ] when he misappropriates material nonpublic information in breach of a fiduciary duty or similar relationship of trust and confidence and uses that information in a securities transaction."Source:
docroot/ir/caselaw/f3d_929.jsonl#/f3d/929/0063-01; Unicode character offsets [5947:6197] (end exclusive); SHA-256 dacb34ef671a500f5fe9fe2db4716722b74b4cd01340dbfc18b443985f46e723.Rule 10b-5(a)/(c) can reach a person who is not the maker of a statement; Lorenzo as applied in Malouf is an SEC scheme-liability holding. It does not create private aiding-and-abetting liability or dispense with the private plaintiff's separate reliance requirement. Insider misappropriation requires a duty/trust relationship and deceptive use of material nonpublic information, not possession alone.