10b5 . . .
refers to a provision in the federal securities laws
which prohibits fraudulent and misleading activities in securities
transactions. State securities acts contain similar prohibitions. All
of these provisions prescribe severe penalties for violators. As a
result, the use of fraudulent or misleading material, the making of
misstatements, or the existence of material omissions in a securities
offering can have serious consequences to a company and its
The text of the 10b5 provision reads as follows:
It shall be unlawful for any person, directly or
indirectly, by the use of any means or instrumentality of interstate
commerce, or of the mails, or of any facility of any national
1. to employ any device, scheme, or artifice to
2. to make any untrue statement of a material fact
or omit to state a material fact necessary in order to make the
statements made, in the light of the circumstances under which they
were made, not misleading,
3. or to engage in any act, practice, or course of
business which operates or would operate as fraud or deceit upon any
person, in connection with the purchase or sale of any security.
The combined effect of 10b5 and similar state laws is
to make it very risky, and potentially costly, to deal in company
securities in a way is not honest, straightforward, and in strict
compliance with the law.
The securities laws, rules, and regulations are
complex, and courts have been expansive in their interpretations of
the 10b5 and other antifraud provisions of the securities laws. To
avoid problems, legal counsel should always be consulted before
offering securities for sale. See:
Placements, Reg D,
SEC (Securities and Exchange
Commission), 33 Act.