In a recently published article, Elon Law Professor Tom Molony identifies ambiguities in federal law and judicial frameworks that have attempted to define when fraudulent activity is connected to securities transactions. Molony’s article also poses solutions to the lack of clarity in this area of law.
Molony’s article, titled “Making a Solid Connection: A New Look at Rule 10B-5’s Transactional Nexus Requirement,” is published in volume 53 of the Santa Clara Law Review (2013). The abstract for the article follows:
“Rule 10b-5 under the Securities Exchange Act of 1934 prohibits fraud only when it is ‘in connection with’ a securities transaction. The limit is simple in concept, but difficult in application. Courts long have struggled to determine when the requisite connection exists.
“In 2009, the Fourth Circuit in SEC v. Pirate Investor LLC introduced a multi-factor framework for analyzing whether a particular fraud meets the ‘in connection with’ requirement. The Fourth Circuit’s factors, however, represent neither mandatory requirements nor an exhaustive list of relevant considerations, and absent from the framework is a general principle for determining when to apply the factors, how to weigh them, and when other factors should be considered. Unfortunately, the Supreme Court likewise has failed to articulate a general principle for the ‘in connection with’ requirement.
“This Article attempts to fill the void left by the Supreme Court. Drawing on the Court’s few ‘in connection with’ cases, the Article proposes a general principle to serve as a guide for applying the ‘in connection with’ requirement. It also critically examines the Fourth Circuit’s multi-factor framework and suggests modifications so that the framework can be applied logically and efficiently and in a way that informs the application of the proposed general principle.”
Molony’s article is available on Westlaw and will be posted on the Santa Clara Law Review website.
More information on Elon Law Professor Tom Molony is available here.