Source: law/NOTES-15usc78j.md
# Research notes — 15 U.S.C. §78j(b) / Rule 10b-5 Rebuilt 2026-11-10. The initial six caption/opening-sentence anchors were discarded; the rulemaking hook previously pointed to §78j(a), which governs short sales. This repair uses the actual §78j(b) clause at `959:1037`, after the deceptive-device language at `907:958`. The canonical IR omits the subsection letters; those source bytes are preserved, not repaired. Scope is ordinary private misstatement damages plus core SEC/criminal fraud and identified scheme boundaries, not all of §78j(a)/(c). ## Source contract and nonstatutory requirements Canonical IR `ir/usc/title15.jsonl#title15_sec78j`, SHA1 `68c07500bf3ebc5bf4f964aba72f2f668d3d5283`, 6978 Unicode characters. [Pinned catalog source](https://www.neochart.com/catalog/federal/title_15/section_78j/title15_sec78j_0d32bcdde2f4/78j_manipulative_and_deceptive_devices_0001/index.html). Every statutory/case quote is an exact end-exclusive character slice of its read-only IR record; none uses web text in place of corpus text. Some records end at 60,000 characters, so findings are limited to the identified windows, not represented as full-opinion reviews. The statute supplies commerce/mails/exchange facilities, purchase/sale connection, deceptive-device prohibition, and SEC rulemaking authority. **Rule 10b-5 is an implementing regulation**, cross-referenced separately, with (a) scheme, (b) statement/half-truth, and (c) deceptive-course branches. Materiality, scienter, Janus statement attribution, and the implied private damages remedy are judicial elaborations. Reliance, economic loss, and loss causation belong to private damages; §78u-4(b)(4) also expressly allocates the private loss-causation burden. Section 78u-4(b)(1)/(2) and Rule 9(b) impose pleading requirements, not additional trial elements. Criminal willfulness and the distinct no-rule-knowledge imprisonment proviso come from §78ff(a). No-rule-knowledge is not encoded as an acquittal defense. The private claim contains all six conventional fraud elements plus statutory commerce/rule hooks. SEC and criminal formulas intentionally omit private reliance/loss elements. Civil SEC proof is preponderance; criminal elements require proof beyond reasonable doubt and the criminal mental state. Relief-specific SEC requirements, private limitation periods/safe harbors, territorial limits, security/investment-contract definition tests, complete tipper/tippee theories, and §§78j(a)/(c) rule catalogues remain outside this core scope. Those omissions are scope limits, not findings that the requirements never apply. ## Contextual case readings The capped `cited_by()` list supplied Carvelli, Hui Feng, Malouf, Metzler, Xia Bi, Afriyie, and Conrad. Dura, Janus and Ginsburg were retrieved directly from canonical IR to ground the private loss, attribution, and civil proof standards. Schena was screened out (the relevant appeal addresses health-care kickbacks); Boustani was screened out (pretrial detention). Their mentions of §78j did not supply securities-fraud elements. ### Carvelli v. Ocwen Fin. Corp. (934 F.3d 1307, 2019) - Pin: 934 F.3d 1307, §II (11th Cir. 2019). [Corpus source](https://www.neochart.com/catalog/cases/f3d/volume_934/1307_01/index.html); IR `/f3d/934/1307-01`, SHA1 `ab3843043ebb1f16bb5845ca60af8e175d6c8942`, chars=60000. - Read windows `11800:18700`: Private Ocwen shareholder action: six elements and total-mix materiality; ordinary Rule 8, Rule 9(b), and PSLRA pleading distinguished. Court rejects particular statements as puffery/opinion/forward-looking or insufficiently false. Used the contextual half-truth rule, not a generic claim that every omission is actionable. ### U.S. Sec. & Exch. Comm'n v. Hui Feng (935 F.3d 721, 2019) - Pin: 935 F.3d 721, §II.B (9th Cir. 2019). [Corpus source](https://www.neochart.com/catalog/cases/f3d/volume_935/0721_01/index.html); IR `/f3d/935/0721-01`, SHA1 `cb4e29c1c3821d7b8966c32ece118d383722d98e`, chars=44863. - Read windows `28400:36500`: SEC action against immigration attorney/broker concerning EB-5 commissions. Undisclosed commissions affected client negotiations and created conflicts; testimony supported intentional concealment. Materiality is objective total mix; Rule 10b-5 scienter differs from §17(a)(2). Broad duty/omission phrasing is not carried forward without the Macquarie limitation. ### Malouf v. Sec. & Exch. Comm'n (933 F.3d 1248, 2019) - Pin: 933 F.3d 1248, §II.A–B (10th Cir. 2019). [Corpus source](https://www.neochart.com/catalog/cases/f3d/volume_933/1248_01/index.html); IR `/f3d/933/1248-01`, SHA1 `b5a83e9ffd491a8494ba5ba298b19cdcbc67e766`, chars=57194. - Read windows `13800:23100`: Investment adviser routed trades through a broker financing payments to him while firm claimed independence. Applies Lorenzo to SEC (a)/(c) scheme liability for failure to correct firm misstatements, and defines scienter/extreme recklessness. Rejected suggestion that non-maker status categorically defeats all branches. Did not import the separate Investment Advisers Act willfulness discussion into criminal §78ff. ### Metzler Asset Mgmt. GMBH v. Kingsley (928 F.3d 151, 2019) - Pin: 928 F.3d 151, §III (1st Cir. 2019). [Corpus source](https://www.neochart.com/catalog/cases/f3d/volume_928/0151_01/index.html); IR `/f3d/928/0151-01`, SHA1 `6b569e6b4ce6e51c6fad7266c7dd60b02865a3eb`, chars=46058. - Read windows `14000:19000`: Biogen investors challenged safety/usage statements. Plausibly misleading allegations still failed PSLRA strong inference, assessed against competing innocent inferences under Tellabs. Used only private pleading constraint, not criminal or SEC burden. ### Xia Bi v. McAuliffe (927 F.3d 177, 2019) - Pin: 927 F.3d 177, §II.C (4th Cir. 2019). [Corpus source](https://www.neochart.com/catalog/cases/f3d/volume_927/0177_01/index.html); IR `/f3d/927/0177-01`, SHA1 `3c264b88e47adb73919f98cfcbb7585a34466ad8`, chars=30660. - Read windows `17400:20400`: EB-5 investment fraud pleading required justifiable reliance with particularity. Federal rule expressly distinguished within discussion also covering Virginia common-law claims. This direct-reliance fact pattern is not a rejection of Basic presumptions in public-market cases. ### United States v. Afriyie (929 F.3d 63, 2019) - Pin: 929 F.3d 63, jury-instruction analysis (2d Cir. 2019). [Corpus source](https://www.neochart.com/catalog/cases/f3d/volume_929/0063_01/index.html); IR `/f3d/929/0063-01`, SHA1 `161ad503eeeb2cee7291dce6c63862d188ad761a`, chars=31266. - Read windows `0:2200; 5700:10500`: Analyst misused confidential ADT acquisition information; confidentiality agreement supported duty of trust. Court rejected plain-error challenge and approved knowing/willful/intent-to-defraud instructions with government burden beyond reasonable doubt. Used for criminal posture and misappropriation boundary, not as a general tipper/tippee catalogue. Good faith negates fraudulent intent; no shifted persuasion burden inferred. ### Dura Pharmaceuticals, Inc. v. Broudo (544 U.S. 336, 2005) - Pin: 544 U.S. 336, 341–344 (2005), Part II. [Corpus source](https://www.neochart.com/catalog/cases/us/volume_544/0336_01/index.html); IR `/us/544/0336-01`, SHA1 `9db60b085220cd253b3e7d84d6542913f6422e3d`, chars=18487. - Read windows `4500:11000`: Dura lists private six-part test, describes rebuttable public-market reliance, and rejects inflated purchase price alone as economic loss/loss causation. A later price decline can instead result from unrelated economic/business changes. Did not impose an exclusive form of corrective disclosure. ### Sec. & Exch. Comm'n v. Conrad (354 F. Supp. 3d 1330, 2019) - Pin: 354 F. Supp. 3d 1330 (N.D. Ga. 2019), materiality/disciplinary-history discussion. [Corpus source](https://www.neochart.com/catalog/cases/f-supp-3d/volume_354/1330_01/index.html); IR `/f-supp-3d/354/1330-01`, SHA1 `592e941236fa7386a358c0c5a8626fb5a7d70b4f`, chars=59999. - Read windows `0:1000; 17600:21000`: Fund operator concealed disciplinary history. District court rejects argument that a prior private claim failed on reliance therefore SEC materiality must fail. Actual rule says SEC does not require private investor reliance; this is a summary-judgment posture, not finding every omission conclusively material. ### Janus Capital Group, Inc. v. First Derivative Traders (564 U.S. 135, 2011) - Pin: 564 U.S. 135, 141–148 (2011), majority §§II.A–B. [Corpus source](https://www.neochart.com/catalog/cases/us/volume_564/0135_01/index.html); IR `/us/564/0135-01`, SHA1 `2ecee17ff59ac4ad27a514d7116bc858cc47df54`, chars=48290. - Read windows `0:2900; 6666:9500; 11100:15000`: Legally separate fund issued prospectuses; adviser assistance/influence did not make adviser the statement maker. Ultimate authority over content and communication defines Rule 10b-5(b) maker. Pair with Malouf/Lorenzo for the separate (a)/(c) knowing-dissemination route; Janus is not a universal exemption from all fraud liability. ### United States Securities & Exchange Commission v. Ginsburg (362 F.3d 1292, 2004) - Pin: 362 F.3d 1292, §III.A.1 (11th Cir. 2004). [Corpus source](https://www.neochart.com/catalog/cases/f3d/volume_362/1292_01/index.html); IR `/f3d/362/1292-01`, SHA1 `9ecfbdf32cd1fd3c59bab5fdb12d67084ab4ee77`, chars=39581. - Read windows `0:1800; 7193:10093`: SEC insider-trading jury verdict set aside by district court; appellate sufficiency analysis expressly identifies preponderance and direct/circumstantial evidence. Used narrowly for civil proof standard, not to assert its 2004 trading/use discussion exhausts current insider-trading doctrine. ## Current primary-source checks Checked 2026-11-10: - [OLRC §78j](https://uscode.house.gov/us/usc/119-136/t15/s78j/) displays law through Public Law 119-136 (2026-10-22) and confirms the authorization is subsection **(b)**; source extraction lost labels but not the quoted operative clause. - [eCFR Rule 10b-5](https://www.ecfr.gov/current/title-17/chapter-II/part-240/section-240.10b-5), operative (a)–(c), confirms separate regulatory branches and transaction connection. No regulatory prose is mislabeled as a statutory `text` quote. - [Macquarie Infrastructure Corp. v. Moab Partners, 601 U.S. 257 (2024)](https://www.supremecourt.gov/opinions/23pdf/22-1165_10n2.pdf), majority pp. 4–8, rejects pure omissions under Rule 10b-5(b), including failure to disclose under Item 303 when no statement is rendered misleading. The decision expressly leaves (a)/(c) issues outside the question presented. It is a current gloss boundary, not an invented local-corpus rule quote. Older Hui Feng/Carvelli omission phrasing cannot independently authorize an unrestricted pure-omission private claim. ## Verification `python3 neov2/tools/lawdsl.py check neov2/law/15usc78j.law`: zero errors; exact source/header/quote verification. `/tmp/neov2-wave2-research/check_claims.py`: every claim symbol resolves. `git diff --check` clean. Manual review checked the §78j(b) rulemaking offset, all six private elements, (b) maker versus (a)/(c) dissemination, SEC/private/criminal separation, quoted judicial holdings versus party arguments, and scope qualifications. Independent QA2 approval remains required; this is an author research record. ## Round 5 QA2 correction and verification — 2026-11-10 Both scoped QA2 failures are corrected in the operative catalogue. `transaction` retains its ID and now has `transaction.security` and `transaction.swap` alternatives. The swap clause at `808:846`, both concluding extension sentences at `1906:2412` and `2413:2717`, and the exclusion for prophylactic reporting/recordkeeping rules are preserved verbatim. The rule-extension exclusion is a limit on which rules carry over, not an exemption from fraud. The security-based-swap-agreement definition is cross-referenced to §78c(a)(78), including its distinction from security-based swaps. No source footnote, spelling, space, or subsection label was repaired. The private formula now expressly requires `purchaser-seller`; SEC and criminal formulas do not. Its statutory hook is subsection (b), `672:711`, not the identical short-sale words at `312:351`. This matters because an exact-quote checker alone would accept the wrong subsection. It is labeled judge-made and separated from transaction nexus. ### New substantive case pin: Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit 547 U.S. 71, 80–81, 84–85 (2006); [corpus opinion](https://www.neochart.com/catalog/cases/us/volume_547/0071_01/index.html); IR `/us/547/0071-01`, SHA1 `42f9799e391a96a065caad5a937ab8b72acdf82f`, 31302 characters. Read `7800:12000` and `15600:19000`: the Court explains Blue Chip's purchaser/seller limitation, expressly distinguishes the private remedy from the transaction nexus, and excludes government enforcement from the standing limitation. These are majority reasoning passages, not the lower court's rejected reading or a caption. Dabit decides SLUSA preclusion; the catalogue uses only its explanation of the private federal remedy and does not impose private standing on SLUSA. Direct Blue Chip IR is unavailable in the local corpus. Verified [Blue Chip, 421 U.S. 723, 731–755](https://www.govinfo.gov/content/pkg/USREPORTS-421/pdf/USREPORTS-421-723.pdf) against the official United States Reports, including contractual purchaser/seller treatment at 750–751 and SEC footnote 14. [Official Dabit](https://www.govinfo.gov/content/pkg/USREPORTS-547/pdf/USREPORTS-547-71.pdf) confirms the distinction. [OLRC §78j](https://uscode.house.gov/us/usc/119-136/t15/s78j/) confirms both the swap branch and concluding extension; [Federal Reserve's official Exchange Act §3](https://www.federalreserve.gov/frrs/regulations/section-3-definitions-and-application-15-usc-78c.htm) confirms §78c(a)(78). Local §78c text is truncated before that definition, so this is a cross-reference and verified summary, not a fabricated local quote. Known limits: instrument qualification remains a cross-reference; the new swap branch has no dedicated swap-fact CASE instance. Territorial application, private forward-looking-statement safe-harbor eligibility, timeliness, and specialized insider/tipper/tippee routes are not complete formula branches. The criminal rule-knowledge proviso is a sentencing cross-reference. None is resolved simply by the added standing node or swap text. Existing IDs remain intact; the financial Round 5 report records claim/CASE checks.