Today, the federal court interpretation of Rule 10b-5, promulgated by the SEC (under the authority of a federal statute, section 10b of the Securities Exchange Act) have become the cornerstone of a federal common law of corporations. Recently there has been expansive use of the rule to afford a private civil remedy for a "defrauded" buyer or seller of securities. The right to sue for either damages or rescission was not explicitly given by the statute or the rule, rather it has been implied by the courts. The dimensions of this new judicially crated right of action are still developing on a case by case bases. Each court which has a securities fraud question before it, reads into the right of action under Rule 10-b5 the elements of proof, restrictions, allowable plaintiffs and defendants which it deems appropriate. Precedent from common law actions of fraud are largely disregarded, for the right to sue emanates from a federal statute. Hence the courts are free to mold, at their pleasure, the right of action and remedy. The result has been that each circuit court of appeals has interpreted the rule differently, creating a lack of uniformity and a confused area of law.
Steven E. Briggs & Donald Bolles,
How Big a House of Cards-Private Actions and Insiders under Rule 10b-5,
San Diego L. Rev.
Available at: https://digital.sandiego.edu/sdlr/vol6/iss2/5