An Essay: Six Competing Currents of Rule 10b-5 Jurisprudence

Abstract

During the 1970’s and 1980’s, the United States Supreme Court decided a number of cases in which the Justices wrestled with the elements and scope of Rule 10b-5, promulgated by the Securities and Exchange Commission under Section 10(b) of the Securities Exchange Act of 1934. Some of these cases were civil – private parties suing other parties for alleged violations of the rule, others were administrative enforcement actions brought by the SEC itself, and a few were criminal cases. Despite the different character of the cases, one could discern certain competing themes, or currents, espoused by different justices in these cases. These currents included: idealism (espousing the view that all investors should have equal access to information); traditionalism (viewing corporate law as largely state law and shunning further federalization of that body of law); economic behaviorism (viewing the scope of rule 10b-5 in terms of the behavior of parties outside the litigation, most especially from the viewpoint of incentives necessary to produce information); paradigm case analysis (identifying the primary focus of securities legislation and determining whether the application of rule 10b-5 in a given case was proximate or distant from that focus); literalism (analyzing whether rule 10b-5 was violated in terms of the literal meaning of certain words, most particularly the term, “security”); and textual structuralism (interpreting the rule to make it congruent with securities legislation and regulations as a whole, particularly the ’34 Act). The article identifies those Justices whose opinions reflected one or more of these competing currents.