证券法目录

第一部分 证券法简介

第一章 证券市场和证券法1. 证券市场2. 相关法律3. 本书结构

第二部分 什么是证券？第二章 《证券法》的定义1. 投资合同2. 非法集资

1. 《最高人民法院关于非法集资刑事案件具体应用法律若干问题的解释》，法释[2010]18号

3．理财产品《银监会关于规范商业银行理财业务投资运作有问题的通知》银监发[2013]8

号信托产品1．《信贷资产证券化试点管理办法》银监会[2005] 第 7号

第三章 资产证券化

第三部分 证券的发行

第三章 证券的公开发行第四章 证券的非公开发行

1. 《证券公司资产证券化业务管理规定》证监发[2013]第 16号2. 《信贷资产证券化试点管理办法》银监会[2005] 第 7号

第四部分 理财

第五章 理财（一），证券投资基金第六章 理财（二），形式多样的资产管理第七章 理财（三），财富管理

QFIIs: A door opens for foreign investors

受信责任和《信托法》美国《投资公司法》. Jones v. Harris Associates (2010)

美国《投资顾问法》2. Goldstein v. SEC (2006)3. Lowe v. SEC (1985)

中国证券投资顾问4. 《证券投资顾问业务暂行规定》证监会公告[2010]27号

第五部分 交易第八章 交易第九章 期货交易第十章 并购

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1. SEC v. Carter Hawley Hale (1985)

2. 《上市公司收购管理办法》第十一章 内幕交易和操纵

1. 《最高人民法院、最高人民检察院关于内幕交易、泄露内幕信息刑事案件具体应用法律若干问题的解释》

2. “光大”内幕交易案b) 操纵

1. United States v. Mulheren (1991)2. Ross v. Bolton

第六部分 金融机构第十二章 证券公司

1. 混业与分业2. 证券公司:中国式投资银行《证券公司监管条例》国务院令第 522号

第十三章 中国式投资银行：信托公司1. 《信托公司管理办法》银监会令[2007]第 2号

第七部分 中介机构第十四章 律师

3. 《律师事务所证券法律业务执行规则》（试行）证监会公告[2010]33号

4. 会计师, Bily v. Arthur Young & Co. (1992)

5. 证券评级机构6. 《证券市场资信评级业务管理暂行办法》证监会令第 50号

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第八部分 监管和索赔第十五章 证券监管机构

1. SEC v. Bank of America2. Gabelli v. SEC (2013)

第十六章 自我监管机构1. 《中国证券金融股份有限公司转融通业务规则》（2012年）2. 《上海证券交易所中小企业私募债券业务试点办法》

第十七章 公司治理7. Corporate governance in Chinese companies8. The governance of SOEs in China

第十八章 民事索赔

1．Stoneridge v. Scientific-Atlanta (2008)

2．仲裁

一、概论《证券法》目录

　　第一章　总　　则

　　第二章　证券发行

　　第三章　证券交易

　　　　第一节　一般规定

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　　　　第二节　证券上市

　　　　第三节　持续信息公开

　　　　第四节　禁止的交易行为

　　第四章　上市公司的收购

　　第五章　证券交易所

　　第六章　证券公司

　　第七章　证券登记结算机构

　　第八章　证券服务机构

　　第九章　证券业协会

　　第十章　证券监督管理机构

　　第十一章　法律责任

　　第十二章　附　　则

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公司上市路线图

　

中国资本市场路线图高净值客户

外国金融机构

QFII

金融期货

银行 /上市公司

理财产品

证券公司 资产证券化产品

银行（ 87%）

信托公司

金融期货

基金管理公司（美国也可以上市）

上市公司

资产证券化产品

储户 股东

信托公司非法集资

证券公司公司

基金公司公司

红酒 /艺术品

地方政府融资

PE房地产

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首次公开发行/上市

风险基金/天使投资者私募股权基金

私募股权基金

非公开发行/私募起始公司

第一章　总　　则

第一条　为了规范证券发行和交易行为，保护投资者的合法权益，维护社会经济秩序和社会公共利

益，促进社会主义市场经济的发展，制定本法。

　　第二条　在中华人民共和国境内，股票、公司债券和国务院依法认定的其他证券的发行和交易，适用

本法；本法未规定的，适用《中华人民共和国公司法》和其他法律、行政法规的规定。

　　政府债券、证券投资基金份额的上市交易，适用本法；其他法律、行政法规另有规定的，适用其规定。

　　证券衍生品种发行、交易的管理办法，由国务院依照本法的原则规定。

　　第三条　证券的发行、交易活动，必须实行公开、公平、公正的原则。

　　第四条　证券发行、交易活动的当事人具有平等的法律地位，应当遵守自愿、有偿、诚实信用的原则。

　　第五条　证券的发行、交易活动，必须遵守法律、行政法规；禁止欺诈、内幕交易和操纵证券市场的行

为。

　　第六条　证券业和银行业、信托业、保险业实行分业经营、分业管理，证券公司与银行、信托、保险业务

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机构分别设立。国家另有规定的除外。

　　第七条　国务院证券监督管理机构依法对全国证券市场实行集中统一监督管理。

　　国务院证券监督管理机构根据需要可以设立派出机构，按照授权履行监督管理职责。

　　第八条　在国家对证券发行、交易活动实行集中统一监督管理的前提下，依法设立证券业协会，实行

自律性管理。

　　第九条　国家审计机关依法对证券交易所、证券公司、证券登记结算机构、证券监督管理机构进行审计

监督。

二、证券的定义

（一）法律定义（二）司法解释

 中华人民共和国最高人民法院公告

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《最高人民法院关于审理非法集资刑事案件具体应用法律若干问题的解释》已于2010年 11 月 22 日由最高人民法院审判委员会第 1502次会议通过，现予公布，自 2011年 1 月 4 日起施行。

二○一○年十二月十三日

为依法惩治非法吸收公众存款、集资诈骗等非法集资犯罪活动，根据刑法有关规定，现就审理此类刑事案件具体应用法律的若干问题解释如下：

第一条 违反国家金融管理法律规定，向社会公众（包括单位和个人）吸收资金的行为，同时具备下列四个条件的，除刑法另有规定的以外，应当认定为刑法第一百七十六条规定的“非法吸收公众存款或者变相吸收公众存款”：

（一）未经有关部门依法批准或者借用合法经营的形式吸收资金；

（二）通过媒体、推介会、传单、手机短信等途径向社会公开宣传；

（三）承诺在一定期限内以货币、实物、股权等方式还本付息或者给付回报；

（四）向社会公众即社会不特定对象吸收资金。

未向社会公开宣传，在亲友或者单位内部针对特定对象吸收资金的，不属于非法吸收或者变相吸收公众存款。

第二条 实施下列行为之一，符合本解释第一条第一款规定的条件的，应当依照刑法第一百七十六条的规定，以非法吸收公众存款罪定罪处罚：

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（一）不具有房产销售的真实内容或者不以房产销售为主要目的，以返本销售、售后包租、约定回购、销售房产份额等方式非法吸收资金的；

（二）以转让林权并代为管护等方式非法吸收资金的；

（三）以代种植（养殖）、租种植（养殖）、联合种植（养殖）等方式非法吸收资金的；

（四）不具有销售商品、提供服务的真实内容或者不以销售商品、提供服务为主要目的，以商品回购、寄存代售等方式非法吸收资金的；

（五）不具有发行股票、债券的真实内容，以虚假转让股权、发售虚构债券等方式非法吸收资金的；

（六）不具有募集基金的真实内容，以假借境外基金、发售虚构基金等方式非法吸收资金的；

（七）不具有销售保险的真实内容，以假冒保险公司、伪造保险单据等方式非法吸收资金的；

（八）以投资入股的方式非法吸收资金的；

（九）以委托理财的方式非法吸收资金的；

（十）利用民间“会”、“社”等组织非法吸收资金的；

（十一）其他非法吸收资金的行为。

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第三条 非法吸收或者变相吸收公众存款，具有下列情形之一的，应当依法追究刑事责任：

（一）个人非法吸收或者变相吸收公众存款，数额在 20 万元以上的，单位非法吸收或者变相吸收公众存款，数额在 100 万元以上的；

（二）个人非法吸收或者变相吸收公众存款对象 30人以上的，单位非法吸收或者变相吸收公众存款对象 150人以上的；

（三）个人非法吸收或者变相吸收公众存款，给存款人造成直接经济损失数额在 10

万元以上的，单位非法吸收或者变相吸收公众存款，给存款人造成直接经济损失数额在 50 万元以上的；

（四）造成恶劣社会影响或者其他严重后果的。

具有下列情形之一的，属于刑法第一百七十六条规定的“数额巨大或者有其他严重情节”：

（一）个人非法吸收或者变相吸收公众存款，数额在 100 万元以上的，单位非法吸收或者变相吸收公众存款，数额在 500 万元以上的；

（二）个人非法吸收或者变相吸收公众存款对象 100人以上的，单位非法吸收或者变相吸收公众存款对象 500人以上的；

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（三）个人非法吸收或者变相吸收公众存款，给存款人造成直接经济损失数额在 50

万元以上的，单位非法吸收或者变相吸收公众存款，给存款人造成直接经济损失数额在 250 万元以上的；

（四）造成特别恶劣社会影响或者其他特别严重后果的。

非法吸收或者变相吸收公众存款的数额，以行为人所吸收的资金全额计算。案发前后已归还的数额，可以作为量刑情节酌情考虑。

非法吸收或者变相吸收公众存款，主要用于正常的生产经营活动，能够及时清退所吸收资金，可以免予刑事处罚；情节显著轻微的，不作为犯罪处理。

第四条 以非法占有为目的，使用诈骗方法实施本解释第二条规定所列行为的，应当依照刑法第一百九十二条的规定，以集资诈骗罪定罪处罚。

使用诈骗方法非法集资，具有下列情形之一的，可以认定为“以非法占有为目的”：

（一）集资后不用于生产经营活动或者用于生产经营活动与筹集资金规模明显不成比例，致使集资款不能返还的；

（二）肆意挥霍集资款，致使集资款不能返还的；

（三）携带集资款逃匿的；

（四）将集资款用于违法犯罪活动的；

（五）抽逃、转移资金、隐匿财产，逃避返还资金的；

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（六）隐匿、销毁账目，或者搞假破产、假倒闭，逃避返还资金的；

（七）拒不交代资金去向，逃避返还资金的；

（八）其他可以认定非法占有目的的情形。

集资诈骗罪中的非法占有目的，应当区分情形进行具体认定。行为人部分非法集资行为具有非法占有目的的，对该部分非法集资行为所涉集资款以集资诈骗罪定罪处罚；非法集资共同犯罪中部分行为人具有非法占有目的，其他行为人没有非法占有集资款的共同故意和行为的，对具有非法占有目的的行为人以集资诈骗罪定罪处罚。

第五条 个人进行集资诈骗，数额在 10 万元以上的，应当认定为“数额较大”；数额在 30 万元以上的，应当认定为“数额巨大”；数额在 100 万元以上的，应当认定为“数额特别巨大”。

单位进行集资诈骗，数额在 50 万元以上的，应当认定为“数额较大”；数额在150 万元以上的，应当认定为“数额巨大”；数额在 500 万元以上的，应当认定为“数额特别巨大”。

集资诈骗的数额以行为人实际骗取的数额计算，案发前已归还的数额应予扣除。行为人为实施集资诈骗活动而支付的广告费、中介费、手续费、回扣，或者用于行贿、赠与等费用，不予扣除。行为人为实施集资诈骗活动而支付的利息，除本金未归还可予折抵本金以外，应当计入诈骗数额。

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第六条 未经国家有关主管部门批准，向社会不特定对象发行、以转让股权等方式变相发行股票或者公司、企业债券，或者向特定对象发行、变相发行股票或者公司、企业债券累计超过 200人的，应当认定为刑法第一百七十九条规定的“擅自发行股票、公司、企业债券”。构成犯罪的，以擅自发行股票、公司、企业债券罪定罪处罚。

第七条 违反国家规定，未经依法核准擅自发行基金份额募集基金，情节严重的，依照刑法第二百二十五条的规定，以非法经营罪定罪处罚。

第八条 广告经营者、广告发布者违反国家规定，利用广告为非法集资活动相关的商品或者服务作虚假宣传，具有下列情形之一的，依照刑法第二百二十二条的规定，以虚假广告罪定罪处罚：

（一）违法所得数额在 10 万元以上的；

（二）造成严重危害后果或者恶劣社会影响的；

（三）二年内利用广告作虚假宣传，受过行政处罚二次以上的；

（四）其他情节严重的情形。

明知他人从事欺诈发行股票、债券，非法吸收公众存款，擅自发行股票、债券，集资诈骗或者组织、领导传销活动等集资犯罪活动，为其提供广告等宣传的，以相关犯罪的共犯论处。

第九条 此前发布的司法解释与本解释不一致的，以本解释为准。

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（三）《中国式影子银行的界定》，《中国政法大学学报》发表

1. 证券法2. 证券投资基金《基金法》2012年第二条 在中华人民共和国境内，公开或者非公开募集资金设立证券投资基金(以下简称基金)，由基金管理人管理，基金托管人托管，为基金份额持有人的利益，进行证券投资活动，适用本法；本法未规定的，适用《中华人民共和国信托法》、《中华人民共和国证券法》和其他有关法律、行政法规的规定。

资产证券化3. 的（四）非法吸收公众存款与投资合同1. 3

2. 的3. 合伙人4.

Goodman v. Epstein ,582 F.2d 388 (7th Cir.1978)

Before TONE, Circuit Judge, KUNZIG, Judge,* and BAUER, Circuit Judge.

KUNZIG, Judge.

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1

This action seeking compensation for damages suffered as a result of a limited partnership land development scheme gone awry comes to us on plaintiffs' appeal from a judgment entered on a general jury verdict for defendants in the United States District Court for the Northern District of Illinois, Eastern Division.

2

Plaintiffs (David L. Goodman, Mollie E. Goodman, Lee A. Freeman, and Lee A. Freeman, Jr., hereinafter plaintiffs or the investors), certain holders of limited partnership interests1 in the D-E Westmont Limited Partnership, filed their complaint against the defendants (Sidney Epstein, Raymond Epstein, and Melvin M. Kupperman, hereinafter defendants or developers), the general partners of D-E Westmont, on February 23, 1976. Their complaint charged violations of Section 10(b)

of the Securities Exchange Act of 1934, 15 U.S.C. 搂 78j(b) (1976)2 and Rule 10b-5

of the Securities Exchange Commission, 17 C.F.R. 搂 240.10b-5 (1977)3 (Count I),

common law fraud (Count II), and breach of fiduciary obligations stemming from alleged misrepresentations made by the general partners in calling for funds under the terms of the limited partnership agreement (Count III). Plaintiffs sought damages in the amount of their total investments, $1,061,500.4

3

Defendants counterclaimed on the basis of a purported release executed by both Freemans, seeking a declaratory judgment that the release was valid and damages arising from their defense to plaintiffs' action. After a trial that lasted approximately six weeks and which consumed some 4,000 pages of transcript, the jury returned a general verdict against all plaintiffs and in favor of all defendants on each of the three counts.5

4

From this general jury verdict, plaintiffs now appeal to this court, which assumes

jurisdiction pursuant to 28 U.S.C. 搂 1291 (1970), raising seven specific errors on the

part of the trial judge (four in his instructions, and three in his conduct of the trial), and arguing that any one of the seven could have so prejudiced the proceedings in favor of the defendants that a new trial would be mandated. Defendants reply, essentially, that the trial judge's interpretation of the law was correct, that his conduct of the trial was fair, and that, if plaintiffs could find only these seven points with which to take exception in this complex securities fraud litigation which consumed

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some thirty trial days, then the fairness of the entire proceedings is manifest and the determination of the jury should be affirmed. Although, for the stated reasons following in this opinion, it appears that six of the seven alleged errors now asserted by the plaintiffs would be insufficient to necessitate a reversal, we believe that one of the trial judge's instructions could have seriously misled the members of the jury concerning the law with respect to time of purchase of securities. Since this error alone could have resulted in the jury's verdict in favor of the defendants on Count I, we reverse on that Count and mandate a new trial on that Count alone.

HISTORY OF THE CASE5

The series of events giving rise to the dispute commenced in the summer of 1971, when L. W. Douglas, Jr., an experienced real estate developer, contacted the defendants, who are architects, engineers, and developers, and proposed that they purchase a certain piece of Westmont, Illinois property and develop it into a residential complex. In October of 1971, Lee A. Freeman (Freeman), an experienced investor in real estate who had worked with Douglas on previous projects, informed both Douglas and defendant Sidney Epstein that he wanted a substantial equity interest in the proposed development. Prior to the end of 1971, Freeman, his son and law partner, Lee A. Freeman, Jr. (Freeman, Jr.), and their sometimes client, Jerry E. Poncher (Poncher), contributed an aggregate of $245,955 which was used to prepay the interest on the real estate loan for the Westmont venture.6 It was not until June of 1972, however, that this amorphous business venture was formalized into a limited partnership.

6

In the interim, Freeman was apparently a moving force in setting up the financing for the entire deal, tentatively agreeing, in late 1971, to take or place at least 60 percent of the equity, with Poncher agreeing to take the remaining 40 percent.7 Freeman even went so far as to negotiate many of the terms of the limited partnership agreement with Douglas. However, when the D-E Westmont Limited Partnership Agreement (with the first amendment thereto) was signed in late June of 1972, Freeman, Freeman, Jr., Poncher, and five other individuals signed only as limited partners, agreeing to furnish total capital of $3 million.8 The general partners, entrusted with the management authority to develop the 108 acres of vacant land, were the Epsteins, Kupperman, and Douglas.

7

Shortly after this limited partnership agreement and its accompanying first amendment were executed, a certificate of limited partnership was signed and filed as required by Illinois state law. The parties agree that the provisions of the certificate

17

substantially reflect those of the partnership agreement as amended. However, the investors go further and correctly emphasize the legal implications of a limited partnership agreement undertaken in compliance with the Illinois statutes on limited partnerships:

8 Under the statute, limited partners have no right to participate in the management of the enterprise. If they do assume such a role, they lose the protection of limited liability. The partnership agreement itself states that "(n)o Limited Partner will take part in the management of the partnership business or transact any business for the partnership or have any power to sign or bind the partnership or to subject the partnership to any liability or obligation." (citations omitted)9

9

Brief for plaintiffs at 13-14.

10

The purpose of this limited partnership was expressed in the agreement itself as "the residential development" of the Westmont land and the evidence demonstrates that a substantial apartment complex was planned, consisting of both townhomes and highrise apartments. Some beginning steps had been taken towards accomplishment of this purpose prior to the formalization of the business relationship. In February of 1972, for example, an effort spearheaded by defendant Kupperman resulting in a rezoning of the property to provide greater flexibility in development; the developers also began, in early 1972, the process which eventually resulted in a direct access road to the property from a nearby highway. Therefore, at the time of the signing of the agreement, it appears that the development of the property was proceeding apace.

11

In early July of 1972, soon after the limited partnership was formalized, the Goodmans became limited partners in the venture by purchasing 25 percent of Poncher's 40 percent equity interest.10 Within six weeks of the signing of the agreement, negotiations began with Larwin Multi-Family Housing Corporation (a subsidiary of CNA, a large insurance company) concerning the possibility of Larwin's purchasing the Westmont venture from the partnership. These negotiations eventually culminated in an offer from Larwin. The developers now assert that an immediate sale to the Larwin interests would have provided the investors with a huge, short-term profit, but that the investors were more interested in tax loss than in cash profits and, so, were "unenthusiastic" about selling. The investors, however, claim that only the developers had detailed, inside knowledge of the Larwin negotiations and that only the developers could, therefore, have been responsible for, or could have had reasonable expectation of, the final collapse of the Larwin deal in December of 1972.

18

12

During the pendency of the Larwin negotiations, development was not at a standstill. After the signing of the limited partnership agreement, the developers moved to secure the necessary permits from local authorities to allow installation of sewerage facilities for the planned residential complex. The exact progress of this application was the subject of some dispute between the parties. Plaintiffs asserted at oral argument that significant problems (as evidenced by an Epstein organization internal memorandum) developed as early as September 14, 1972. Defendants, on the other hand, argued that the first hint of any difficulties occurred in January of 1973, when the Illinois Environmental Protection Agency (IEPA), formally denied the developers' application for a permit, and that, even then, they were being assured by the local governmental entity that any minor misunderstandings with the IEPA could certainly be worked out. Regardless of the actual beginning date of the difficulties, however, the significant fact alleged by the investors is that they were given no notice of the difficulties being incurred in this regard until it was too late to withhold any significant capital contributions.

13

Closely related to the sewerage permit problem is the difficulty encountered with an adjacent land developer Miller Builders over responsibility for the undersizing of sewer pipelines which prevented the Westmont project from getting even local government approval. Plaintiffs here cite a letter from defendant Kupperman to the president of Miller Builders, dated October 30, 1972, describing the inability of Westmont to get a permit because of the actions of Miller and the "three month delay" already encountered, and stating that "(t)his letter to you is my last rational resort . . . before I do something that will be distasteful for all of us." Plaintiffs again assert that they were given no notice of this problem which was, apparently, sufficiently serious to drive Mr. Kupperman to his "last resort."

14

During this entire time frame, however, other preparations were apparently proceeding apace in an effort to produce the considerable improvements advertised in the developers' brochure of August 25, 1971; shown in the attractive rezoning petition submitted on January 12, 1972; and contemplated in the Limited Partnership Agreement of June 1972. The fees for this preliminary architectural, engineering, and contracting work (shown in the record to amount to some $300,000) were charged by the developers to the limited partnership and were paid by the limited partners.

15

19

The investors argued at trial, however, and introduced evidence tending to prove that even this planning function, which was more within the control of the developers, did not progress smoothly. They asserted that the "inability of personnel employed by developers to agree upon the design of buildings and a site plan . . . resulted in substantial and very costly delays" which were not related to the limited partners. This delay in the site plan preparation could also have accounted for the developers' failure to present a site plan to secure the contemplated construction financing from the First Chicago Corporation.

16

Plaintiffs still insist that they had no knowledge whatsoever of the increasingly serious difficulties being encountered by the developers. They assert that the only meaningful communications received from the "inner circle" of the general partners were calls for capital under the terms of the agreement.

17

The developers interpret the facts somewhat differently,11 claiming that the only reason actual construction did not commence during the fall of 1972 was the impending sale to Larwin. They insist that Freeman was intimately familiar with all the inside information necessary to know what was really happening. As evidence of this latter fact, they cite Freeman's increasingly hostile attitude toward Douglas through 1972 and his insistence on Douglas' removal as a General Partner in March of 1973.12 Even the defendants admit, however, that Freeman's dissatisfaction with Douglas arose more from Douglas' performance in Another project than from any shortcomings of which Freeman might have known concerning the Westmont deal.

18

The apparent final blow to the Westmont Project as originally planned appears to have occurred in March of 1973, when the developers (specifically defendant Kupperman) wrote to the Westmont Village manager and requested the return of $140,000 which the partnership had previously paid to the Village to obtain the necessary building permits. Notwithstanding this apparent concession that the long, downhill slide of the Westmont Project had, for whatever reasons, resulted in the death of Phase I construction13 as it had been contemplated, the General Partners, thereafter, made a $500,000 capital call in April of that year, specifically on the advice of counsel,14 omitting to mention the purpose of the call or the use to which the capital would be put.

19

20

Ironically, and also in the spring of 1973, a second amendment to the Limited Partnership Agreement was executed. The purpose of this amendment was to formalize Douglas' withdrawal as a General Partner; paragraph fifteen of this second amendment reads as follows:

20 The Limited Partners and each of them do hereby release and forever discharge Raymond Epstein, Sidney Epstein and/or Melvin M. Kupperman from any and all claims, debts, liabilities, payments, obligations, actions and causes of action of every nature, character and description which the Limited Partners or each of them hold as of the date of actual execution of this Second Amendment or have ever held against Raymond Epstein, Sidney Epstein and/or Melvin M. Kupperman arising out of or in any way connected with the partnership.

21

It was some months after this spring of 1973 capital call and Limited Partnership Agreement amendment that the investors finally became aware that Phase I had been abandoned. Nevertheless, the developers subsequently made one further capital call15 and kept the project going for many more months, apparently in an effort to liquidate the partnership's holdings in as expeditious and economically rewarding a manner as possible under the circumstances.16 The final months of the venture degenerated into a series of formalistic letters between the General and Limited Partners, pertaining mostly to accounting and disbursement of funds, in which each side was apparently jockeying for position in the lawsuit which was then looming ever more ominously over the horizon.

22

When the suit finally was filed on February 23, 1976, plaintiffs sought total damages in the amount of $1,061,500, alleging that defendants had violated the federal securities laws (Count I), committed common law fraud (Count II), and breached the fiduciary obligation owed by General Partners to the Limited Partners in a limited partnership (Count III). A jury trial commenced before Judge Julius J. Hoffman in the United States District Court for the Northern District of Illinois, Eastern Division, on October 28, 1976. The trial lasted six full weeks and consumed some thirty trial days; the transcript of proceedings is more than 4000 pages in length, and there were in excess of 400 exhibits admitted into evidence. At the end of this considerable undertaking, Judge Hoffman read to the jury what amounted to more than 60 separate instructions17 and the jury retired to deliberate in the late afternoon of Thursday, December 9, 1976. About an hour later, the jury executed a sealed verdict which was unsealed and read in open court the next morning. The jury returned a general verdict in favor of each of the three defendants and against each of the four plaintiffs on each of the three Counts.

21

23

Plaintiffs now appeal from the judgment entered on this general verdict on grounds, not that the verdict was contrary to the substantial weight of the evidence, but that substantial mistakes of law and errors in the conduct of the trial on the part of the trial judge tipped the scales in favor of defendants in what was, otherwise, a close and complex case.

POSITIONS OF PARTIES ON APPEAL24

Plaintiffs contend that the trial judge made substantial errors of law in each of four individual instructions which so prejudiced plaintiffs in regard to their Count I that a new trial on that Count should be mandated.18 Plaintiffs' allegations of legal error in the instructions may be summarized as follows19:

25 (1) The validity of the release.20

26

Plaintiffs contend that the trial court's instruction concerning the validity of the release contained in the Second Amendment to the D-E Westmont Limited Partnership Agreement was premised on the view that only fraudulently induced releases of causes of action under the federal securities laws are invalid; that it failed to convey to the jury the controlling principle that a release is valid only if it relates to a fully matured cause of action; and that it failed to state that the person releasing the cause of action must have had full knowledge of such cause of action at the time the release was executed if the release was to be upheld.

27

Plaintiffs base their arguments in this area largely on the "strong policy" they find in the federal securities laws against the release of unknown or subsequently maturing causes of action. Plaintiffs assert that a purported release may be valid only if it is a deliberate, intentional waiver of rights of which the waiving party had full, contemporaneous knowledge at the time of the waiver. Plaintiffs cite section 29(a) of

the Securities Exchange Act of 1934, 15 U.S.C. 搂 78cc(a),21 and several related

cases to bolster their contention that the waiver of a not-yet-fully-ripened cause of action should not be recognized by this court. They also assert that plaintiffs' trial counsel objected to the trial judge's instruction when it was given.

28 (2) The means of knowledge and the due diligence defense.22

22

29

Plaintiffs argue that the trial court, though not using express terms, gave a standard knowledge and means of knowledge instruction which had the clear effect of requiring plaintiffs to show that they exercised "due care" or "due diligence" with respect to their investments. The standard knowledge instruction, given near the beginning of the trial judge's considerable instructions and not applying to any specific Count, could, argue the plaintiffs, reasonably have been understood by the jury to apply to all Counts. In addition, the trial judge's continued reference to care or diligence or inquiry requirements of the plaintiffs with respect to various other issues raises the substantial possibility that the jury could have found against plaintiffs on even the federal securities cause of action (Count I) because they found that the plaintiffs had not exercised due care or diligence.

30

Plaintiffs conclude that such a rationale for a finding against plaintiffs would clearly be incorrect as a matter of law since the Supreme Court's decision in the case of Ernst & Ernst v. Hochfelder.23 Plaintiffs argue that since the Hochfelder opinion requires reckless or intentional deceptions in order to sustain a Rule 10b-5 action, it would now be unfair to the plaintiff, and inconsistent with the policy objectives behind Section 10(b) and Rule 10b-(5), to continue to exonerate a willfully fraudulent defendant because of the innocent lack of care of a plaintiff. Plaintiffs here cite a recent case in this Circuit to demonstrate that the "due diligence" defense is no longer available in 10b-5 actions.24

31 (3) Whether a limited partnership interest constitutes security.25

32

Plaintiffs argue that a limited partnership interest is a security as a matter of law and that the trial judge's instructions improperly submitted to the jury the question of whether plaintiffs' interests constituted securities under the federal securities laws. Plaintiffs cite case law26 holding that limited partnership interests constituted securities as a matter of law and then demonstrate that, under the Illinois law of limited partnership, the interests of the plaintiffs here met the test established by the Supreme Court for determining whether a financial interest is, in fact, a "security." Plaintiffs maintain that theirs was an "investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others."27

33

23

Because of the emphasis which defendants placed on the participation of Freeman in the preliminary arranging of financing for the project and because a limited partnership interest bears little resemblance to what lay jurors would consider a "security," plaintiffs contend that the submission of this issue to the jury, particularly in the face of the considerable weight of legal authorities to the contrary, was so prejudicial as to necessitate a new trial in that the jury's general verdict in favor of all defendants on Count I, the federal securities count, could easily have been premised on the conclusion that plaintiffs, as limited partners, did not hold "securities."

34 (4) The proper rule to be used in determining when a "purchase" of a security occurs.28

35

Plaintiffs' strongest contention stems from the instruction to which they most clearly and strenuously took exception at trial. They argue that the trial judge's instructions on the determination of the point in time when the "purchase" or "sale" of a security occurred (If the jury concluded that it was a security which plaintiffs actually purchased) amounted, in the context of this case, to an incorrect directed verdict in favor of the defendants on Count I. Plaintiffs particularly complain of one clause of the instructions which was read to the jury,

36 . . . The purchase of such security occurred when such a plaintiff was committed or obligated by agreement to acquire such interest, even if such plaintiff was to perform his or her obligations under the agreement after a lapse of time, Each subsequent capital contribution made pursuant to such an agreement does not constitute a purchase of a security. . . . (emphasis added)

37

arguing that this clause was "in effect a peremptory direction to the jury that only the limited partnership agreement itself could be considered the 'purchase' of a security."

38

While plaintiffs concede that there is no authority which specifically decides that each contribution of capital under a limited partnership agreement constitutes a separate "purchase" of a security, they strongly assert that a holding to the contrary (which is, plaintiffs say, what the trial judge's instruction to the jury constituted) would contravene the strong public policy against investment fraud embodied in securities laws.

39

24

The crux of plaintiffs' basic argument lies in the rationale that the original "commitment" to a limited partnership venture is not the final investment decision to be made over the course of what may be a relationship of many years' duration. To buttress their assertion that each subsequent call for capital by the General Partners raises a separate investment decision, the investors list six different options open to the Limited Partner at the time of his receipt of the capital call. A limited partner could (claim the investors): (1) comply with the call; (2) abandon the project; (3) sell his limited partnership interest;29 (4) if he had any information tending to demonstrate fraud by the General Partners, refuse to contribute the called-for capital and defend against the General Partners' suit (if, indeed, one was brought) on the basis of breach of the Limited Partnership Agreement by the General Partners; (5) file for a declaratory judgment ending his obligations to the Limited Partnership; or (6) file an action to dissolve the partnership and seek a return of prior contributions.30

40

Plaintiffs strongly assert before this court that the existence of all of these options at the time of each capital call renders the decision to invest more capital a true "investment decision" and makes the receipt of true and accurate information from the General Partners absolutely vital in reaching any kind of an informed determination. Plaintiffs cite several cases, which shall hereinafter be discussed at length, in support of this contention and argue that the trial judge's misapplication of the securities laws in this respect is so prejudicial as to mandate reversal and a new trial.

Errors Alleged in Conduct of Trial41

In addition to these four assertions of errors in the trial court's instructions, plaintiffs complain of three errors in the court's conduct of the trial which were, purportedly so prejudicial that each demands reversal in its own right.

42

(a) Plaintiffs assert that the trial court, by overruling an objection to a cross-examination question intended to elicit from Freeman, Jr., the exact amount of his considerable 1971 total income, incorrectly allowed the jury to hear evidence that was "irrelevant to any issue in this case and was highly prejudicial to plaintiffs." They would argue that this error played neatly into the hands of the defense, which attempted throughout the trial to paint plaintiffs, in front of the lay jurors, as rich, sophisticated, tax-sheltering investors who should have known what they were getting into and should have been able to cover, from their extensive personal wealth, any losses arising from their financial maneuvering. They contend that the rule against admitting evidence of a party's income or wealth is a long-standing principle of our legal system.31

25

43

(b) Plaintiffs further argue that the trial court committed reversible error when it denied a motion for a mistrial after the defense counsel suggested, in the presence of the jury, evidence concerning Freeman's communications with the other Limited Partners was relevant to the case on the ground that Freeman had brought the suit essentially as a protective measure since he had taken an active part in the distribution of Partnership interests and feared that some of the other Limited Partners might sue him. The plaintiffs further argue that this initial error was compounded because the trial court never instructed the jury to disregard defense counsel's statement and because no other evidence was ever introduced to support it. A combination of errors such as these, they assert, in conjunction with other errors, has previously been found sufficient to warrant a new trial.32

44

(c) Finally, plaintiffs assert that, despite plaintiffs' failure to object at the time of the statement, we should now find reversible error in a statement by defense counsel in his closing argument to the effect that none of the other Limited Partners had found reason sufficient to initiate suit against the defendants. This statement was made despite, and in the face of, a prior ruling by the trial court sustaining plaintiffs' objection to a question concerning the very same fact that no other Limited Partners had brought suit. Plaintiffs now urge that the judge in a district court is more than a mere observer or moderator and that we should correct his error in trial conduct despite plaintiffs' failure timely to object.

45

Defendants, of course, are not left speechless by these arguments by the plaintiffs. The primary thrust of defendants' response appears to be that, when considered against the background of a thirty-day trial with its 400 exhibits and 4400 pages of record, the errors asserted by the plaintiffs, if, indeed they were errors, were so insignificant that they could have had little effect on the eventual outcome of the trial or the decision by the jury to find so overwhelmingly in favor of the defendants on all three counts. They reply specifically to the plaintiffs' contentions of error as follows:

46 (1) The validity of the release.

47

The defendants' simplest response to this allegation is that there was no error. They contend that the instruction properly directed the jury that only known,33 Matured claims could be released under the federal securities laws and that such an interpretation is perfectly in keeping with the interpretation which various courts have

26

given to Section 29(a) of the Securities Exchange Act of 1934, 15 U.S.C. 搂 78cc(a)

(1976), relied upon so heavily by the plaintiffs,34 and with the underlying policy of the securities laws.

48

The defendants continue their rejoinder on this allegation of error with the assertion that even if there were some legal imprecision in the court's release instruction, plaintiffs cannot now be heard to allege error in that instruction because they did not take proper objection to that portion of the instruction which referred to releasing claims "which the plaintiffs knew or upon reasonable inquiry could have known before signing the release." In addition, they continue, the plaintiffs did not submit an instruction which could have corrected the alleged error of which they now complain; therefore, they are further precluded from now alleging error.

49 (2) The means of knowledge and the due diligence defense.

50

Defendants' response to plaintiffs' allegations of error on this issue is centered on the contention that the trial court's "means of knowledge" instruction had nothing to do with a "due diligence" defense under Count I. They state that they did, in fact, tender to the court a "due diligence" instruction with relation to Count I, but that it was specifically rejected; they argue that plaintiffs' brief inaccurately frames the court's standard "means of knowledge" instruction (to make it look like a "due diligence" instruction) by excerpting and then joining different instructions covering different subjects from among 37 pages of transcript; they urge that a "means of knowledge" instruction was appropriate within the context of this case as evidenced by plaintiffs' failure to object properly to the "means of knowledge" instruction at trial; and, they conclude that, if the trial judge's instructions are read as a whole, as they should be,35 rather than in the selective, piecemeal fashion suggested by the plaintiffs, the instructions constituted an accurate interpretation of the law and provide no grounds for reversal.

51 (3) Whether a limited partnership interest constitutes a security.

52

Defendants strenuously assert, on this issue, that plaintiffs cannot be heard to allege error on appeal, since the trial judge read from an instruction tendered by the plaintiffs, to which the plaintiffs took no proper objection at trial.36 They cite Rule 51 of the Federal Rules of Civil Procedure37 and recent decisions of this court38 as controlling for the principle that a failure properly to object to an instruction before

27

the jury begins deliberation precludes the non-objecting party from assigning error on appeal.

53

In addition to this procedural argument, defendants also respond that, even if the plaintiffs' failure to object be excused, no reversal is mandated because the trial judge was correct, in the circumstances of this case, in leaving to the jury the question whether a limited partnership interest constituted a security. They argue that there were factual disputes, eliciting conflicting evidence at trial, on at least two of the three factors to be considered in determining whether a financial interest is a security39 the motivation of the investors and the degree to which the investors actually relied on the management efforts of others. They point out evidence which could have been interpreted by the jury as showing that the motivation of the investors was loss (for purposes of tax reductions) rather than the "profit" required by the Supreme Court's three-part test; further they argue that evidence of Freeman's considerable efforts at arranging the financing could have been interpreted as showing that he, at least, was not relying solely on the "entrepreneurial or managerial efforts of others."40 Defendants conclude that the necessary factual determinations arising from this conflicting evidence could only have been resolved by sending the question to the jury and that the trial judge, therefore, was entirely correct in submitting the question to the jury.

54 (4) The proper rule to be used in determining when a "purchase" of a security occurs.

55

Again, defendants' response here is that the instruction given to the jury was a perfectly correct statement of the law. Relying on Radiation Dynamics, Inc. v. Goldmuntz, 464 F.2d 876 (2d Cir. 1972), and its progeny, they contend that a "purchase" (or "sale") of a security occurs when the original commitment is made by a buyer to purchase or a seller to sell, or, in other words, when there is a "meeting of the minds" between those two parties. Since Rule 10b-5 prohibits only material misrepresentations "in connection with the purchase or sale" of a security, defendants argue, any alleged misrepresentation or omission occurring after the date of the original commitment cannot be "in connection with the purchase or sale" of the security; or omissions occurring after the date of commitment cannot possibly have any effect on the decision as to whether or not to invest.

56

The developers further argue that evidence of the investors' "commitment" at the time of the execution of the Limited Partnership Agreement was sufficient to raise a factual

28

question that had to be decided by a jury; that Clearly each additional contribution need not necessarily constitute separate purchases; and that, therefore, the trial judge was absolutely correct in submitting this question to the jury.Errors Alleged in Conduct of Trial

57

The defendants, in addition, reason that none of the errors in the conduct of the trial alleged by plaintiffs is of sufficient magnitude if, indeed, they are errors at all to warrant reversal. In fact, they marvel that plaintiffs could find only three small "errors" of which to complain in a trial of the magnitude and complexity of this one.

58

(a) Defendants argue that the trial court correctly overruled plaintiffs' objection to a cross-examination question to Freeman, Jr., concerning his total 1971 income, since matters pertaining to his income and wealth were put in issue during direct examination by his own counsel. Such questions were, contend defendants, particularly relevant to the issue of the possible tax planning motivation of the investors in entering the D-E Westmont Limited Partnership in the first place. Defendants also note that plaintiffs took no objection to similar questions asked of Freeman concerning his 1972 and 1973 income, and conclude that a trial court's ruling on cross-examination cannot be disturbed on appeal in the absence of a clear abuse of discretion.

59

(b) The developers further argue that the trial court properly declined to order a mistrial as a result of the statement by their counsel, in the presence of the jury, that Freeman may have brought the instant suit to avoid being sued himself by one or more of the other Limited Partners. They contend that their attorney made the statement only in an attempt to explain, at the invitation of plaintiffs' counsel, the relevance in a particular line of questioning, and conclude that, since the denial of a motion for mistrial is quite properly committed to the broad discretion of the trial judge, there is certainly no reason here for a reversal.

60

(c) Defendants finally argue that, since plaintiffs never objected to the remarks of defendants' counsel in his closing argument, to the effect that none of the other Limited Partners had found grounds to sue, they now are precluded from raising this allegation of error on appeal. Further, defendants contend, there was nothing in the remark to affect seriously the basic "fairness, integrity or public reputation of . . . (these) proceedings."

29

61

As can be seen, the numerous arguments in this complex case make any kind of a facile solution impossible. Unappealing as is the prospect of reversing a proceeding which has required such expenditures of time and money from both the parties and the courts, we must nevertheless determine whether the interests of fairness and justice demand a new trial. We agree, in general terms, with the defendants' position that the four alleged mistakes of law in the instructions and the three alleged errors in the conduct of the trial are remarkably few. Although plaintiffs failed properly to preserve certain errors which they now raise on appeal, they did take proper objection to the instructions of the trial judge pertaining to a portion of Count I. Therefore, plaintiffs did preserve for appeal a crucial error of law concerning When the purchase of a security occurs.

62

For the reasons stated below, we reverse the jury verdict entered in the District Court and remand for a new trial on Count I.

DISCUSSION63

(1) The validity of the release.64

Both parties appear to be in basic agreement that Section 29(a) of the Securities Exchange Act of 193441, as interpreted by the courts, mandates that a purported release of claims under the federal securities laws is valid Only as to mature, ripened claims of which the releasing party had knowledge before signing the release.42

65

The basic difference between the parties here appears to center on the question of whether the "knowledge" which a releasing party must have of the existence of the claims includes those things of which "he should have known upon reasonable inquiry." The defendants base their argument in this regard largely on two district court cases in which the courts held that general releases were valid as to claims as to which plaintiffs had "actual knowledge" or which they could "upon reasonable inquiry, have discovered." Mittendorf v. J. R. Williston & Beane, Inc., 372 F.Supp. 821, 834 (S.D.N.Y.1974); See also, Korn v. Franchard Corp., 388 F.Supp. 1326, 1332 (S.D.N.Y.1975). These opinions, followed almost to the word by the trial judge's instructions in the present case, do, indeed, appear to extend the scope of knowledge to include that which could have been discovered upon reasonable inquiry.

66

30

Plaintiffs' counter-reasoning that the scope of "knowledge" should be limited to actual, specific knowledge is based generally upon the judicial hostility to securities claim releases which they find in a number of cases43 and particularly upon the opinion of the district court in Childs v. RIC Group, Inc., 331 F.Supp. 1078 (N.D.Ga.1970), Aff'd, 447 F.2d 1407 (5th Cir. 1971) (per curiam). In that case, the court determined that "(a) party does not waive . . . rights without acting in full knowledge thereof." 331 F.Supp. at 1083.

67

Of these two apparently competing philosophies, we find, for the reasons stated below, that the defendants' theory which admittedly places some duty of inquiry on the party signing the release, is the more readily acceptable as fulfilling the policy requirements of the federal securities laws and needs of judicial economy.

68

The only questions which must be resolved prior to the acceptance of this "reasonable inquiry" philosophy, in the circumstances presented here, stem from the Supreme Court's decision in the case of Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976). In that opinion, handed down more recently than either Korn or Mittendorf, the Court held that only intentional deceptions were actionable under Rule 10b-5 and that plaintiffs could, therefore, no longer recover for merely negligent misrepresentations or omissions. 425 U.S. at 193, 96 S.Ct. 1375.44 While we will discuss the ramifications of this decision more fully in our "Means of knowledge" section, Infra, several courts, including this one, have now determined that the outcome in Hochfelder necessitates a move away from requiring the plaintiff to have exercised "due diligence" in acquiring knowledge about his investments before allowing him to recover from the defendant.45 The rationale behind doing away with the "due diligence defense" seems compelling, so we are concerned that, by requiring "reasonable inquiry" (which may be interpreted to have a meaning similar to "due diligence") of an individual signing a release of a securities claim, the trial court may have allowed the "due diligence defense" to slip in through the back door.

69

The trial court's instruction on this matter required the jury to determine whether there had been fraud In the procurement of the release. If the jury determined that there was no such fraud, then they were instructed, essentially, that the plaintiffs had a duty to inquire into the matter concerning which the release was executed. Although the remaining portion of the instruction concerning the maturity of the claim was, perhaps, not as explicit as desirable, we believe that the portion concerning

31

knowledge of the claim comports sufficiently with the law and with common sense so as not to necessitate, in itself, a new trial.

70

The Korn and Mittendorf philosophy, adopted by the trial court here, does not run counter to either the letter or the spirit of Hochfelder. The Hochfelder decision and its progeny require us to move away from a "due diligence defense"46 with regard to the substantive merits of a 10b-5 claim; however, we perceive a significant distinction to be drawn between the substantive merits of a 10b-5 claim and an attempted release thereof. In the substantive merits aspect of the case, it appears only fair that a plaintiff, compelled to prove that the defendant committed an intentional or reckless deception, should not also be forced to prove that he (the plaintiff) did not in any way contribute to his own harm.

71

A totally different situation occurs, however, when we are dealing with a plaintiff who has affirmatively acted to release another party from any possible liability in connection with a transaction in securities. The mere fact that an individual has been asked to sign a release should be sufficient to put that individual on notice that a reasonable inquiry should be undertaken. No longer do we have the innocent investor sitting back and merely holding his security; we are not requiring an innocent investor Continually to question management concerning his investment, but only to undertake a "reasonable inquiry" prior to taking the affirmative act of signing a release.

72

That "reasonable inquiry" will assuredly differ from situation to situation. In many cases, it may involve only the questioning of the person or persons seeking the release; any deception by those persons at that point could amount to fraud in the procurement of the release, which would clearly have invalidated the release under the trial court's instruction in this case.

73

The requirement that a person exercise reasonable inquiry to discover possible matured claims existing at the time of execution of a waiver does nothing to defeat the general policy against the In futuro waiver of securities claims. See, e. g., Wilko v. Swan, supra. Quite to the contrary, it insures that the signing of a waiver is something that will not be undertaken lightly, with the expectation that the waiver will be unenforceable even as to existing claims because the party executing the waiver kept his eyes closed, and therefore did not "know." Such a "reasonable inquiry" policy also favors the Honest settlement of claims which is recognized as essential to the

32

continued functioning of our judicial system. See, e. g., Mittendorf v. J. R. Williston & Beane, Inc., supra, 372 F.Supp. at 835.

74

Thus, although we are aware that the trial judge's instructions to the lay jury on this complicated securities matter may not have been as clear as would have been desirable, we believe that they contained an essentially correct statement of the law concerning releases of securities claims and, therefore, do not constitute reversible error. Because of our conclusion that the trial judge correctly stated the law, we need not reach here the further question of whether plaintiffs properly objected and preserved their right to appeal from this instruction.

75 (2) The means of knowledge and the due diligence defense.

76

Closely related to our discussion in the previous section is plaintiffs' assertion that the trial judge's instructions incorrectly required the jury to determine that the plaintiffs had exercised "due diligence" before it could find in favor of the plaintiffs. As we stated, the decision of the Supreme Court in Hochfelder has necessitated an entirely new look at the duty of care which should be imposed upon a plaintiff in a 10b-5 action.

77

Although the Supreme Court made no specific pronouncement in Hochfelder, the Court of Appeals for the Tenth Circuit recognized the new limitation on the "due diligence defense" in Holdsworth v. Strong, 545 F.2d 687 (10th Cir. 1976) (en banc), Cert. denied, 430 U.S. 955, 97 S.Ct. 1600, 51 L.Ed.2d 805 (1977),47 and this Circuit has also recently ruled that "due diligence" is no longer a defense to Section 10(b) and Rule 10b-5 liability:

78 Under a negligence standard of liability, plaintiff could not justifiably claim reliance if he had not exercised due diligence. But under a reckless or Hochfelder Scienter standard, "(i)f contributory fault of plaintiff is to cancel out wanton or intentional fraud, it ought to be gross conduct somewhat comparable to that of defendant." (Citations omitted.)

79

Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d 1033, 1048 (7th Cir.), Cert. denied, 434 U.S. 875, 98 S.Ct. 225, 54 L.Ed.2d 155 (1977), Quoting Holdsworth v. Strong, supra, 545 F.2d at 693. Thus, it would appear that, if the trial court's

33

instructions did, indeed, require "due diligence" of the investors, plaintiffs have now raised a valid point on appeal.

80

Plaintiffs' position, however, is assailable in two highly relevant aspects. First, it is doubtful that the trial court's instruction could be read as requiring "due diligence" on the part of plaintiffs with regard to Count I; even if it could be so read, it is even more doubtful that plaintiffs properly preserved any error for appeal.

81

Since the record makes clear that the trial court, in its instructions, never imposed a specific requirement on the plaintiffs that they must demonstrate their "due diligence" in order to recover on Count I,48 plaintiffs' appeal here is necessarily reduced to a complaint that an unfortunate "spill-over" occurred between the knowledge instructions of the other Counts and those of Count I.

82

Our remand as to only Count I, along with an effort by the new trial court clearly to differentiate the differing knowledge requirements which we have imposed for the merits of a Rule 10b-5 claim and for the release or waiver thereof,49 should result in a "cleaner" trial insofar as the means of knowledge is concerned and should eliminate many of the possible opportunities (which existed in the previous trial) for confusion among the jurors. Because we thus determine that there was no legal error to be found in the instructions of the trial court on the means of knowledge and its relevance to the various Counts, we need not reach here defendants' further argument that plaintiffs failed properly to preserve their "knowledge" issue for appeal. We must, however, reach this question of proper objection in our next section.

83 (3) Whether a limited partnership interest constitutes a security.

84

On the question of whether the trial judge incorrectly left for the jury the question of whether an interest in a limited partnership constituted a security, we agree with plaintiffs that the trial judge should have made that determination and directed the jury that the interest present in this case was, as a matter of law, a security.

85

The basic test which has been enunciated by the Supreme Court for determining the existence of a security involves three elements: (1) an investment in a common venture (2) premised on a reasonable expectation of profits (3) to be derived from the

34

entrepreneurial or managerial efforts of others, United Housing Foundation, Inc. v. Forman, 421 U.S. 837, 852, 95 S.Ct. 2051, 44 L.Ed.2d 621 (1975). A limited partner's interest in a limited partnership established under Illinois law meets, on its face, all of these requirements. The actual D-E Westmont Limited Partnership Agreement (with its amendments) further confirms that the three requirements are met.

86

We recognize that, in evaluating a financial interest to determine whether an "investment contract," or security, exists, the substance of the transaction must be elevated over the form; that is, the existence or non-existence of an "investment contract" must be determined from the actual facts and circumstances of the investment arrangement and not from the existence or non-existence of a "stock certificate" alone. See, e. g., Tcherepnin v. Knight, 389 U.S. 332, 336, 88 S.Ct. 548, 19 L.Ed.2d 564 (1967); SEC v. C. M. Joiner Leasing Corp., Inc., 320 U.S. 344, 64 S.Ct. 120, 88 L.Ed. 88 (1943); Daniel v. Int'l Brotherhood of Teamsters, 561 F.2d 1223, 1231 (7th Cir.), Cert. granted, 434 U.S. 1061, 98 S.Ct. 1232, 55 L.Ed.2d 761 (1977); Hirk v. Agri-Research Council, Inc., 561 F.2d 96, 100 (7th Cir. 1977); Milnarik v. M-S Commodities, Inc., 457 F.2d 274, 276 (7th Cir.), Cert. denied, 409 U.S. 887, 93 S.Ct. 113, 34 L.Ed.2d 144 (1972). It is this very consideration which has allowed numerous courts to determine that a limited partner's interest in a limited partnership is an "investment contract" or "security," even though it does not have the normal trappings of what a lay person may think of as a security. See, e. g., McGreghar Land Co. v. Meguiar,521 F.2d 822, 824 (9th Cir. 1975); Ahrens v. American-Canadian Beaver Co.,428 F.2d 926, 929 (10th Cir. 1970); Hirsch v. duPont, 396 F.Supp. 1214, 1217 (S.D.N.Y.1975), Aff'd, 553 F.2d 750, 758 (2d Cir. 1977). These courts recognized, as have the Securities and Exchange Commission50 and several respected commentators,51 that the very legal requirements for a limited partnership necessitate its including all of the attributes of a "security" in the interest bestowed upon one of limited partners.

87

We do not accept defendants' assertion that they raised sufficient factual questions to necessitate the trial judge's sending this issue to the jury. A summary perusal of the evidence adduced at trial reveals no debatable question of the plaintiffs' interests meeting all three of the Howey/Forman tests. See note 39, Supra.

88

There can be little doubt that each of the Limited Partners made an "investment in a common venture." Each parted with a significant sum of money52 which was, according to the terms of the Agreement, to be pooled to accomplish a common purpose.53 All of this was in accordance with the provisions of the Illinois Uniform

35

Limited Partnership Act,54 and met even the relatively more stringent requirements which this Circuit has placed on "commonality."55 In addition, it is clear that the Limited Partnership contributions were made "premised on a reasonable expectation of profit." Defendants have made much of the fact the evidence could have indicated that plaintiffs, particularly the Freemans, may have harbored some initial expectation of tax benefits to be derived from the partnership. Even if the jury had given credence to the evidence that the probability of an initial "loss," recognizable for tax purposes, was to be anticipated in a real estate development plan which was, as are many beginning business operations, heavily front-loaded with costs, such evidence would not compel a conclusion that the investors had insufficient expectation of Eventual profit to meet the "reasonable expectation of profit" requirement. The probability of initial "tax losses" does nothing to change the underlying legal nature of the limited partnership interest nor to disturb the basic common sense presumption that business ventures are entered into for profit.56 Indeed, if the investors had only entered into the deal in order to suffer an eventual loss, there would have been no reason for them to bring this action a total loss is just what they suffered.57

89

Defendants' final thrust at disproving the existence of a "security" centered around their attempting to show Freeman's participation in the "management" of the D-E Westmont Limited Partnership. Despite the fact that the Uniform Limited Partnership Act, in effect in Illinois and under which the D-E Westmont Limited Partnership was chartered, precludes participation by Limited Partners in the management of the partnership, and despite the fact that plaintiffs have failed to contest the legality of the D-E Westmont Limited Partnership, defendants now point to evidence adduced at trial, which may have tended to show that Freeman earlier conducted extensive efforts to line up Financing for the venture, in an attempt to demonstrate that Freeman's participation in the Management of the partnership was such as to preclude his interest58 from being a "security."

90

While Freeman's alleged participation in arranging financing or his relative proximity to the "management circle" may have been relevant and highly significant to the issue of Freeman's knowledge, or his means of knowledge, of the operation, and while it may have been sufficient to cloud the jury's perception in this test for the existence of a security (if, indeed, the jurors understood what the test was after the trial court's instruction), it was certainly insufficient to overcome the simple facts that Freeman, as a Limited Partner, was prohibited, by law, from taking part in the management of the corporation and that the defendants made no showing that Freeman had actually participated in any of the essential management decisions affecting the basic direction of the partnership.59

36

91

In light of the weighty authority for considering a limited partnership interest to be "security" within the protective scope of the federal securities laws, the trial judge should have given plaintiffs' requested instruction that plaintiffs' interests were securities.60 The potential injustice resulting from the error was increased by the danger that plaintiffs' "securities" were something that might not comport with lay juror's concept of "securities."61

92

The failure of plaintiffs to make the objection required by Rule 51, Fed.R.Civ.P., is of no practical significance, because a new trial is required for another reason, and in the new trial plaintiffs will be entitled to a proper instruction on this aspect of the case.

93 (4) The proper rule to be used in determining when the "purchase" of a security occurs.

94

The item which constitutes grounds for reversal is the trial court's instruction to the jury on the means which the jurors should employ in determining if and when the "purchase" or "sale" of a security occurred. The record demonstrates that plaintiffs' counsel made a full and timely Rule 51 objection to the court's instruction which was read to the jury as follows:

95 For the purposes of Count I, if you find that a limited partnership interest obtained by a plaintiff constituted a security, the purchase of such security occurred when such a plaintiff was committed or obligated by agreement to acquire such interest(;) even if such plaintiff was to perform his or her obligations under the agreement after a lapse of time, Each subsequent capital contribution made pursuant to such an agreement does not constitute a purchase of a security. (Emphasis added.)62

96

We agree with plaintiffs that, under the circumstances of this case, this instruction amounted to an incorrect peremptory direction to the jury that only the Limited Partnership Agreement itself could be considered the purchase of a security and that such a peremptory direction, again under the peculiar circumstances of this case,63 clearly eliminated any chance of the plaintiffs' obtaining a favorable verdict on Count I.

97

37

As described earlier, the facts adduced at trial demonstrate that plaintiffs signed a Limited Partnership Agreement which provided for donations of capital by the Limited Partners from time to time upon calls therefore by the General Partners. After the signing, as provided for in the Agreement, the plaintiffs, on several occasions, complied with calls for capital by the defendants and, in total, contributed over one million dollars, none of which was recouped by the time this action was begun. Plaintiffs, basically, assert that the continued failure of the General Partners, over an extended period of time which eventually reached about two years, to inform the Limited Partners of the successively worsening prospects or the eventual total abandonment of the Phase 1 development for which the investment money was allegedly being expended, constituted a violation of the federal securities laws. Defendants, on the other hand, relying heavily on the "commitment doctrine" enunciated by the Second Circuit in Radiation Dynamics, Inc. v. Goldmuntz, 464 F.2d 876 (2d Cir. 1972), contend that the Limited Partners became "committed" on the date of the Limited Partnership Agreement and that any duty or obligation of the General Partners, under the federal securities laws, to furnish information to the Limited Partners ceased at that time.

98

Recent decisions of the Supreme Court teach us that, even though private federal securities fraud claims are judicially created, See Superintendent of Insurance v. Bankers Life & Casualty Co., 404 U.S. 6, 13 n. 9, 92 S.Ct. 165, 30 L.Ed.2d 128 (1971); Blue Chip Stamps v. Manor Drugstores, 421 U.S. 723, 730, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975), a determination of the law applicable to such a claim must begin

with the "language of 搂 10(b) . . . itself." Santa Fe Industries v. Green, 430 U.S. 462,

472, 97 S.Ct. 1292, 51 L.Ed.2d 480 (1977), quoting from Ernst & Ernst v. Hochfelder, 425 U.S. 185, 197, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976), which in turn quotes from Blue Chip Stamps v. Manor Drugstores, supra, 421 U.S. at 756, 95 S.Ct. 1917 (Powell, J., concurring). Section 10(b) is addressed to deception "in connection with the purchase or sale of any security." The Supreme Court has interpreted the "in connection with" requirement broadly: To be actionable, the deception need only "touch" the transaction complained of. Superintendent of Insurance v. Bankers Life & Casualty Co., supra, 404 U.S. at 12-13, 92 S.Ct. 165, quoted with approval in Santa Fe Industries v. Green, supra, 430 U.S. at 476, 97 S.Ct. 1292. The words "purchase"

and "sale" have similarly been broadly construed for 搂 10(b) purposes.64 The 1934

Act itself defines these words more broadly than did the common law. 15 U.S.C. 搂

78c(a)(13), (14).65

99

38

To effectuate the broad remedial purpose of the federal security laws, they are to be construed liberally and flexibly.66 As the Radiation Dynamics case, on which defendants rely so heavily recognizes:

100 Rule 10b-5 was intended to prevent those in possession of material inside information from using that information to their own advantage when dealing with others not possessing the same information.67

101

In determining the statute's coverage, "we must ask whether respondents' alleged misconduct is the type of fraudulent behavior which was meant to be forbidden by the statute and rule." SEC v. National Securities, 393 U.S. 453, 467, 89 S.Ct. 564, 572, 21 L.Ed.2d 668 (1969). Thus, in interpreting the phrase "in connection with the sale or purchase of any security," which does not admit of a precise definition, we must consider the facts of the particular case. See, e. g., Allico Nat. Corp. v. Amalgamated Meat Cutters, 397 F.2d 727 (7th Cir. 1968); A. P. Brod & Co. v. Perlow,375 F.2d 393 (2d Cir. 1967); Ohashi v. Verit Industries, 536 F.2d 849 (9th Cir.), Cert. denied, 429 U.S. 1004, 97 S.Ct. 538, 50 L.Ed.2d 616 (1976); Richardson v. MacArthur, 451 F.2d 35 (10th Cir. 1971); See generally, Note, The Pendulum Swings Farther: The "In Connection With" Requirement and Pretrial Dismissals of Rule 10b-5 Private Claims for Damages, 56 Texas L.Rev. 62 (1977).

102

In Radiation Dynamics, the Second Circuit was faced with a situation in which a party, Radiation Dynamics (RD), largely because of internal working capital requirements, sold stock of another company, TRG, and only then found out that TRG was in the process of negotiating a merger which was to be consummated some 31/2 months later. As a result of this merger, the stock which RD had sold for $299,000 was traded by the defendants for some $690,270 worth of stock in the acquiring company, which was then sold within 21/2 months at a profit of $391,270.

103

RD, characterized by the court as "a disgruntled seller," brought suit against the initial purchasers of the TRG stock, alleging that they had failed to disclose to RD material inside information concerning the prospective merger. At a jury trial, the evidence demonstrated that, in late May of 1964, RD had initiated a contact with Goldmuntz, the chief executive of TRG, who recommended several possible purchasers to RD; that on June 24, 1964, Goldmuntz agreed to purchase and RD agreed to sell 500 shares;68 that Goldmuntz introduced RD to one Fisher, whom Goldmuntz knew was interested in purchasing blocks of TRG stock; that RD offered, on June 14, 1964, to sell some 3000 shares to a "California Group" (CG) assembled by Fisher; that RD

39

acquired the 3500 shares to sell to Goldmuntz and the CG on July 30, 1964; that the sale to the CG was finally closed on August 3, 1964, and that the sale to Goldmuntz was completed on August 17, 1964.69

104

The evidence also indicated that certain parties within TRG had concluded that a merger was necessary for TRG's well-being as early as the first part of 1964. On June 22, 1964 (two days before the RD-Goldmuntz agreement) Goldmuntz had visited the offices of Aerojet-General in the process of merger discussions which were eventually aborted. On July 24, however, (ten days after the RD-California Group agreement but ten days before the closing) Goldmuntz was visiting the offices of Control Data Corporation (CDC) and viewed financial data not normally shown unless both parties were "seriously considering a merger." Dickering on terms continued from mid-August until mid-September when CDC presented an acceptable offer. The merger agreement was signed on November 12, 1964, and the shares exchanged in December.

105

The jury returned a special verdict in favor of the defendants, finding that neither Goldmuntz nor the California Group possessed "Material information as to a Reasonably possible . . . merger with Control Data"70 when RD made its respective "commitments" to them. The plaintiff, on appeal, complained, among other things, of the trial judge's instruction which had made the important date for disclosure purposes the date upon which RD made its "commitment" to sell. In the final segment of an extensive opinion which affirmed the trial court on numerous points, the Second Circuit stated:. . . Judge Pollack correctly instructed the jury when he stated that the time of a "purchase or sale" of securities within the meaning of Rule 10b-5 is to be determined as the time when the parties to the transaction are committed to one another. A party does not, within the intendment of Rule 10b-5, use material inside information unfairly When he fulfills contractual commitments which were incurred by him previous to his acquisition of that information, for, as Judge Pollack instructed the jury, the Rule imposes "no obligation to pull back from a commitment previously made by the buyer and accepted by the seller because of after acquired knowledge." The goal of fundamental fairness in the securities marketplace is achieved by such a determination.

106 . . . "Commitment" is a simple and direct way of designating the point at which, in the classical contractual sense, there was a meeting of the minds of the parties; It marks the point at which the parties obligated themselves to perform what they had agreed to perform even if the formal performance of their agreement is to be after a lapse of time. . . . (Emphasis added.)71

40

107

This same portion of the Radiation Dynamics opinion was quoted to us at length by defendants here and, standing alone, may appear to lend substantial support to the position they assert. A closer inspection, however, indicates that the facts before this court, and the underlying equities involved, are sufficiently different that a "wooden adherence" to the general proposition stated in the quoted language would not serve to further "the goal of fundamental fairness in the securities marketplace." A different rationale, the seeds of which have already been sown,72 is now required.

108

In Radiation Dynamics the investment decision was completed at the time the parties entered into the agreement, the contract between purchaser and seller being, in effect, a "one-shot deal." No continuing relationship was contemplated. All that was left undone was the ministerial exchange of the money for the stock. The seller would have had no legal alternative to performing the contract even if it had acquired the information in question. Under these circumstances the information was not material and could not have been relied upon in making an investment decision. In other similar cases involving "one-shot deals" the same result has been reached on the same ground, I. e., the information, even if supplied, would not have entitled the plaintiff to refuse to carry out the transaction.73

109

In the case now before us, the circumstances are substantially different from those faced by the Radiation Dynamics court. What we have here is Not a one-shot deal. The seller-defendants were required (as General Partners under the terms of the Limited Partnership Agreement) to perform certain management functions which were the primary determinants of the value of the securities sold. Most of these management functions were to be performed after the execution of the Limited Partnership Agreement and the contributions of capital (though they could have been expressly lumped into one up-front payment) were spaced out, "from time-to-time," over the course of the management's performance. The parties clearly envisioned an ongoing relationship under the Agreement with the management making all of the decisions affecting the basic value of the enterprise and its chances of progressing toward its advertised goal. Because of this ongoing relationship and the fact that the entire $3,000,000 for Phase I was not collected "up front" but was to be contributed "from time-to-time" as Phase I progressed toward completion, the purchasers were left with the possibility of an investment decision each time a call was made. The purchasers, aware of their ability to bring about dissolution of the partnership if it

could not be operated profitably, Ill.Rev.Stat. ch. 1061/2 搂 32(1)(e), or, depending

on the circumstances, to take other action, could hardly be said to have "signed on for

41

the duration." Had the purchasers agreed to pay the entire three million dollars in one shot, perhaps they would have insisted upon a different type of agreement, providing more affirmative accountability by the General Partners, or would have taken a more active role in policing the disclosures of the General Partners. We cannot speculate as to possibilities. What we can state with some certainty, however, is that any "meeting-of-the-minds" which occurred when the Agreement was signed clearly involved a series of payments, and, potentially, a whole series of "investment decisions" which could be made based on the progress, or lack of progress, in Phase I development.74 Whether the facts were such that any remedy to alter the plaintiffs' obligations75 under the Agreement would have been available to them was, of course to be determined by the trier of fact in this action. If not, the undisclosed facts were not material, and failure to disclose them would not be actionable. But so long as an investment decision remained to be made upon any possible state of facts, the nondisclosure was in connection with the purchase of a security.

110

This is not the first time our court has recognized that the crucial fact in circumstances such as those at bar is whether an investment decision remains to be made by the party from whom disclosure is withheld, and not upon when the agreement to purchase or sell was executed. Thus, the reverse side of the coin before us, Viz., that when the withheld information is obtained before that party makes an investment decision, damages resulting from that decision are not recoverable, was established in Sundstrand.76

111

In Sundstrand, the court determined the existence of 10b-5 liability and then turned to the question of damages. The purchaser, who was also the plaintiff in Sundstrand, had exercised an option to purchase roughly $6.7 million worth of stock by paying $334,785 on January 9, with final delivery of the shares and payment of the remaining balance of $6,360,915 to take place between February 9 and April 19. Sometime before January 20, however, after the $334,785 payment but before the $6,360,915 payment, Sundstrand discovered material information (previously not disclosed by the other party) which made the purchases most undesirable. Notwithstanding this discovery, however, and on the advice of counsel that they were legally "committed" to follow through on the purchase, Sundstrand paid the outstanding balance on

February 6. They then brought suit under 搂 10(b) to recover the entire $6.7 million.

112

The court, in limiting Sundstrand's recovery to the $334,785 originally paid did, in fact, utilize the Radiation Dynamics "commitment" date (January 9) to determine the

42

cut-off date for damages. However, in rejecting Sundstrand's argument that they were "committed" to the entire payment on January 9, the panel made a significant distinction. It found that the advice of counsel had been incorrect, and that Sundstrand could have avoided the final payment it determined that Sundstrand had had a Legal alternative which it could have exercised. Based on this determination, the court refused recovery to Sundstrand of the larger amount.77

113

Similarly, in Wright v. Heizer Corp., 560 F.2d 236, 250 (7th Cir. 1977), Cert. denied, 434 U.S. 1066, 98 S.Ct. 1243, 55 L.Ed.2d 767 (1978), we held that in circumstances where the materiality of an omission has been shown, proof of a legal alternative available to the plaintiff is sufficient to establish reliance. Cf. also Daniel v. International Brotherhood of Teamsters, 561 F.2d 1223, 1243 (7th Cir. 1977), Cert. granted, 434 U.S. 1061, 98 S.Ct. 1232, 55 L.Ed.2d 761 (1978), (ability to vote down pension plan or withhold services from local fund found to be sufficient legal alternative to render contributions to "compulsory" pension fund a "purchase or sale").

114

We note that in an analogous context, the S.E.C.'s position on when a sale or purchase of a security occurs, (which is entitled to substantial weight, Zeller v. Bogue Electric Manufacturing Co., 476 F.2d 795, 800 (2nd Cir. 1973)), is in accord with our holding. Rule 136(a) of the S.E.C.'s General Rules and Regulations under the Securities Act of

1933, 17 C.F.R. 搂 230.136 (1977), provides that a sale of a security occurs when the

holder of assessable stock pays or agrees to pay "all or any part of such an assessment." Rule 136(c) provides that "assessable stock" is that which allows the issuer to repurchase the stock if the stockholder fails to meet the assessment call. The stockholder is, of course, "committed" to meet the assessment call; but his option to return the stock to the issuer in lieu of meeting the assessment requires an investment decision on his part, thereby bringing this situation within the reach of the Act. That Rule 136 is promulgated under the Securities Act, instead of the Securities Exchange Act, does not alter the conclusion. The Securities Act contains its own antifraud

provision, 搂 17(a), 15 U.S.C. 搂 77q(a), which, similar to 搂 10(b) of the Securities

Exchange Act, requires, Inter alia, a sale or purchase of a security. To the extent the

antifraud provisions differ, 搂 10(b) is generally considered to be broader in scope.

Ingenito v. Bermec Corp., 376 F.Supp. 1154, 1179 n.8 (S.D.N.Y.1974).

115

43

For all of the above-stated reasons, we find that, when an investment decision remained to be made at the time of a call for a capital contribution by a Limited Partner (see text at note 74, Supra ), the contribution by each Limited Partner in response to the call constituted a separate "purchase" of a security and, therefore, any material representations or omissions at that time were "in connection with the

purchase or sale" of a security, as required by 搂 10(b) and Rule 10b-5.78

116

Given this conclusion, we must agree with the plaintiffs that the trial court's instruction to the effect that "each subsequent capital contribution . . . does Not constitute a purchase of a security" (emphasis added) was an incorrect statement of the law which, under the circumstances of this case, amounted to a peremptory direction to the jury to find against the plaintiffs and in favor of defendants insofar as Count I was concerned. Such an incorrect direction was so obviously prejudicial to the interests of the plaintiffs that we must return this action to the district court for a new trial on Count I.79

117

A few words should be added about causation and damages. Capital contributions used to satisfy partnership liabilities which antedated actionable deception are of course not recoverable. If and to the extent that plaintiffs can establish that there became a time when, if they had been informed of the true state of affairs, they could have avoided throwing good money after bad, they will have proved a claim for which the securities laws affords them a remedy.

Errors Alleged in the Conduct of the Trial118

Because of our disposition of this case in section 4, Supra, we need not go further here than to decide that the three alleged errors, even if they were errors, were insufficient, either individually or in combination, to warrant a new trial on all three Counts.80 In fact, we here agree with defendants that, in a trial of such duration and complexity, it is remarkable that only three errors were alleged.

119

At a new trial, limited only to Count I, the trial court in its discretion, will have to determine the relevance of questions based on the circumstances as the court then perceives them. Thus, further direction at this point would be fruitless.

120

44

In summary, we hold that the instructions of the trial court were legally accurate insofar as they dealt with the validity of releases under federal securities laws, and the

absence of any "due diligence" requirement on plaintiffs in a 搂 10(b)/Rule 10b-5

cause of action, and that the court's conduct of the trial was free of any errors sufficiently prejudicial to necessitate a new trial.

121

We further hold that the trial court's instructions on whether a Limited Partnership interest is a "security" under the federal securities laws, though they contained legal inaccuracies (which may be corrected in a new trial) did not constitute reversible error because plaintiffs failed properly to object to these instructions at trial and, therefore, failed adequately to preserve this question for appeal.

122

Finally, however, we hold that the trial court's instructions on the proper rule to employ in establishing the time of a "purchase" or "sale" of a security, which were both legally inaccurate and properly preserved for appeal, were so prejudicial to the interests of the plaintiffs with regard to Count I that we must mandate a new trial on that Count and that Count alone.

123

Accordingly, the judgment entered in the district court, against all plaintiffs and in favor of all defendants on all three Counts, is affirmed with regard to Count II and Count III and reversed with regard to Count I. Count I is hereby remanded to the district court for further proceedings not inconsistent with the above opinion. Each side will bear its own costs. The judgment of the district court is

124

AFFIRMED IN PART.

125

REVERSED IN PART AND REMANDED.

* Judge Robert L. Kunzig of the United States Court of Claims is sitting by designation1 Plaintiffs Lee A. Freeman and Lee A. Freeman, Jr., were named as limited partners in the amended D-E Westmont limited partnership agreement. Plaintiffs David L. and Mollie E. Goodman, were assignees of a part of the interest of a third person, Jerry B.

45

Poncher, named as a limited partner in that same amended agreement. All these individuals will hereinafter be referred to as limited partners2 Section 10 of the Securities Exchange Act of 1934 reads in pertinent part: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 securities exchange(b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.

Securities Exchange Act of 1934, 搂 10(b), 15 U.S.C. 搂 78j(b) (1976).

3 The ubiquitous Rule 10b-5, entitled "Employment of manipulative and deceptive devices," reads:It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interestate (sic) commerce, or of the mails or of any facility of any national securities exchange,(a) To employ any device, scheme, or artifice to defraud,(b) To make any untrue statement of a material fact or to 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, or(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.17 C.F.R. 搂 240.10b-5 (1977)

4 This $1,061,500 figure represented 50 percent of the total investments made by all the limited partners of D-E Westmont, both those who are plaintiffs and those who elected not to sue5 When plaintiffs requested a directed verdict on the counterclaim, defendants requested the trial court to dismiss the counterclaim, which it did6 The tax benefits to an individual with substantial income of such a prepayment of interest are self-evident. Defendants contended that tax savings was the main purpose of the limited partners in entering the Westmont venture, and there was some evidence in the record from which the jury could have found that to be a substantial consideration of at least the Freemans and Poncher7

46

Further, defendants assert that Freeman, in March of 1972, insisted that he alone would decide who the limited partners were to be in the yet-to-be-formed limited partnership. There is some evidence in the record to support this assertion8 Under certain circumstances, the limited partners could be called upon to increase their total contributions beyond the $3 million. Although defendants contend, and Sidney Epstein apparently believed, that the initial $3 million contribution was due upon the signing of the agreement, the agreement itself (and its amendment) called for contributions of the capital by the limited partners "from time to time, upon the request of the General Partners." (Amendment to D-E Westmont Limited Partnership Agreement, para. 2) While the General partners could conceivably have "requested" a lump sum payment "up front," it appears from the wording of the document as though the signatories contemplated a number of separate transactions over an extended period of time9 The applicable sections of the Illinois limited partnership statutes read, in pertinent part:

搂 47. Contributions

The contributions of a limited partner may be cash or other property, but not services.

Ill.Ann.Stat. ch. 1061/2 搂 47 (Smith Hurd)

搂 50. Limitation of liability

A limited partner shall not become liable as a general partner unless, in addition to the exercise of his rights and powers as a limited partner, he takes part in the control of the business.

Ill.Ann.Stat. ch. 1061/2 搂 50 (Smith Hurd)

搂 53. Rights of limited partners

(1) A limited partner shall have the same rights as a general partner to(a) Have the partnership books kept at the principal place of business of the partnership, and at all times to inspect and copy any of them(b) Have on demand true and full information of all things affecting the partnership, and a formal account of partnership affairs whenever circumstances render it just and reasonable, and(c) Have dissolution and winding up by decree of court.(2) A limited partner shall have the right to receive a share of the profits or other compensation by way of income, and to the return of his contribution as provided in Sections 15 and 16.

Ill.Ann.Stat. ch. 1061/2 搂 53 (Smith Hurd)

10

47

Paragraph 17 of the limited partnership agreement provides for transfer of a Limited Partner's interest, and states that "(t)he transferee shall be a Limited Partner to the extent of the partnership interest transferred or encumbered." For the purposes of this opinion, we shall assume without deciding that the Goodmans do, in fact, hold limited partnership status11 Since the trial of this action resulted only in a general jury verdict, there are no findings of fact resolving factual disputes. We recognize that a jury at a new trial will resolve for itself the facts in contention and draw the necessary inference therefrom12 Freeman apparently negotiated the terms of Douglas' withdrawal from the partnership. One of these terms was a complete release of Douglas from any claims by the remaining partners which might have arisen from Douglas' acts as a General Partner13 The Westmont Project was initially divided into three distinct phases for planning purposes. Phase I, the phase with which the investors and developers were initially concerned, involved the building of some 480 rental units occupying approximately 13 acres of the total land area14 The letter from Joseph Antonow, Esquire (also a limited partner in the Westmont venture) to defendant Sidney Epstein reads as follows:Enclosed herewith is the suggested form to be sent to the Limited Partners of D-E Westmont for the purpose of obtaining additional capital contributions from them.You will note the letter does not contain any reason for the additional amounts. The reason for that is that despite what you say in this letter, you will be asked to give an explanation by Lee Freeman or others, and I do not want to create a precedent so that each time you have to give an accounting. Moreover, the Partnership agreement does not require that you give an explanation for calling up to $3,000,000.Plaintiffs' Trial Exhibit 16115 Evidence at trial indicated that this final capital call was made by the General Partners on June 6, 1974, to make interest payments on the real estate loan and to pay real estate taxes16 Communications from the General and Limited Partners during this period indicated that many other options were being actively pursued. Plaintiffs, however, argued and submitted some evidence tending to prove that the Epsteins attempted to interest a possible purchaser of the Westmont property in another real estate venture being assembled by the Epsteins17 Defendants contend, in their brief, that plaintiffs tendered a total of 32 requested instructions, of which 26 were given to the jury in whole or in substantial part18

48

At oral argument, counsel for plaintiff upon inquiry from the court, conceded that, although he would of course contend that a new trial was required on all three Counts, he had taken exception only to those instructions relating to Count I because he had read the instructions relating to Counts II and III and they had looked all right. Therefore, the alleged errors in the instructions relate only to Count I, the federal securities laws count. Other alleged trial errors relating to all counts are discussed Infra19 We have taken the liberty of renumbering plaintiffs' allegations of error to allow for ease of discussion in the succeeding pages20 The pertinent part of the court's instruction on the validity of the release was as follows:In March of 1973 the plaintiffs released and discharged the defendants. And the D-E Westmont Limited Partnership released and discharged Lewis W. Douglas, Jr., another partner in the partnership from any and all claims or causes of actions arising out of the operation of the partnership to the date of the releases.The defendants assert these releases as a defense to the claims in this action. The plaintiffs assert that these releases were procured by fraud. The plaintiffs' burden with respect to the allegations in Count I is to prove by a preponderance of the evidence that the release and discharge of the defendants was procured by means of a securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934 or Rule 10(b)(5) thereunder, both of which have previously been read to you by me.If you find from all of the evidence that the plaintiff has failed to prove by a preponderance of the evidence any one of the propositions necessary to show security fraud in obtaining the release and discharge of the defendants, then the releases are valid with regard to Count I.In determining whether the plaintiffs' release and discharge of claims in Count I were procured by fraud, you should consider whether the plaintiffs received and retained benefits under the agreement containing the release after learning of the facts which they now assert as a basis for the claim that the release was fraudulently procured.The retention of such benefits, if any, after learning those facts is inconsistent with the claim that the releases were fraudulently procured.A person is not justified in relying on an alleged misrepresentation as to a contract he signs when he has been afforded the opportunity to read it, but through his neglect fails to do so. Thus, no plaintiff may base a claim of fraudulent procurement of the releases upon alleged misrepresentations as to the terms of the agreements containing the releases when such plaintiff had an opportunity to read the agreements but failed to do so.If you find that the plaintiffs have not met the burden of proving by a preponderance of the evidence that the release and discharge of the defendants from the claims in Count I was procured by fraud, you must find for the defendants with respect to all claims in Count I of which the plaintiffs knew or upon reasonable inquiry could have

49

known before signing the release, which claims might have been submitted to and resolved in a court at the time the release was signed.21 (a) Waiver provisionsAny condition, stipulation, or provision binding any person to waive compliance with any provision of this chapter or of any rule or regulation thereunder, or of any rule of an exchange required thereby shall be void.

15 U.S.C. 搂 78cc(a) (1976).

22 The pertinent part of the court's instruction relating to knowledge and the means thereof reads as follows:The means of knowledge are ordinarily the equivalent in law to knowledge. So if it appears from the evidence in the case that a person had information, which would lead a reasonably prudent person to make inquiry through which he would surely learn certain facts, then this person may be found to have had actual knowledge of those facts, the same as if he had made such inquiry and had actually learned such fact. That is to say the law will charge a person with notice and knowledge of whatever he would have learned upon making such inquiry as would have been reasonable to expect him to make under the circumstances.23 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976)24 See, Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d 1033 (7th Cir.) Cert. denied, 434 U.S. 875, 98 S.Ct. 225, 54 L.Ed.2d 155 (1977), discussed in detail Infra25 The pertinent part of the court's instruction on whether a limited partnership interest is a security reads as follows:For the purposes of Count I, if you find that a limited partnership interest obtained by plaintiff constituted a security, the purchase of such security occurred when such a plaintiff was committed or obligated by agreement to acquire such interest, even if such plaintiff was to perform his or her obligations under the agreement after a lapse of time, each subsequent capital contribution made pursuant to such an agreement does not constitute a purchase of a security.26 E. g., Ahrens v. American-Canadian Beaver Co., 428 F.2d 926 (10th Cir. 1970); Hirsch v. duPont, 396 F.Supp. 1214 (S.D.N.Y.1975)27 United Housing Foundation, Inc. v. Forman, 421 U.S. 837, 852, 95 S.Ct. 2051, 2060, 44 L.Ed.2d 621 (1975). See also SEC v. W. J. Howey Co., 328 U.S. 293, 301, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946)28 The pertinent part of the court's instruction relating to the determination of the point in time when a "purchase" occurs reads as follows:

50

For the purposes of Count I, if you find that a limited partnership interest obtained by a plaintiff constituted a security, the purchase of such security occurred when such a plaintiff was committed or obligated by agreement to acquire such interest, even if such plaintiff was to perform his or her obligations under the agreement after a lapse of time, Each subsequent capital contribution made pursuant to such an agreement does not constitute a purchase of a security. (Emphasis added)This was given only After the court rejected plaintiffs' proposed instruction on this issue:(Y)ou are instructed to find that each respective capital contribution by a plaintiff to the D-E Westmont Limited Partnership as an investment in that real estate construction project constituted a separate purchase of a security.29 In fact, two of the plaintiffs in this case, David L. and Mollie E. Goodman, became owners of an interest in the D-E Westmont Limited Partnership by purchasing that interest from Poncher, one of the original Limited Partners. Plaintiffs would argue that Poncher's decision to sell a portion of his interest constituted an "investment decision."30 See Ill.Ann.Stat. ch. 1061/2 搂 32 (Smith Hurd), which reads in pertinent part:

搂 32. Decree of dissolution by court

(1) On application by or for a partner the court shall decree a dissolution whenever:(c) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business,(d) A partner wilfully or persistently commits a breach of the partnership or agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him,(e) The business of the partnership can only be carried on at a loss,(f) Other circumstances render a dissolution equitable.31 Plaintiffs cite the following passage from an 1899 case to support their contention:It has ever been the theory of our government, and a cardinal principle of our jurisprudence, that the rich and poor stand alike in courts of justice, and that neither the wealth of the one nor the poverty of the other shall be permitted to affect the administration of the law. Evidence of the wealth of a party is never admissible, directly or otherwise, unless in those exceptional cases, where position or wealth is necessarily involved in determining the damages sustained. As to this general proposition there can be no doubt, and no authorities need be cited.Laidlaw v. Sage, 158 N.Y. 73, 52 N.E. 679, 690 (1899).See Berguido v. Eastern Air Lines, Inc., 35 F.R.D. 200, 211-12 (E.D.Pa.1964).32

51

See Kiefel v. Las Vegas Hacienda, Inc., 404 F.2d 1163, 1165 (7th Cir. 1968), Cert. denied, 395 U.S. 908, 89 S.Ct. 1750, 23 L.Ed.2d 221 (1969)33 For purposes of defendants' argument and the court's instruction on this validity of the release issue, a "known" claim includes those claims of which plaintiffs could have acquired knowledge "upon reasonable inquiry."34 See Korn v. Franchard Corp., 388 F.Supp. 1326, 1329 (S.D.N.Y.1975); Mittendorf v. J. R. Williston & Beane, Inc., 372 F.Supp. 821, 835 (S.D.N.Y.1974)35 Citing Nolan v. Greene, 383 F.2d 814, 816 (6th Cir. 1967); Allers v. Bohmker, 199 F.2d 790, 792 (7th Cir. 1952)36 Plaintiffs, at oral argument before this court, pointed out that although the trial judge had, indeed, read two of three paragraphs submitted by plaintiffs, he omitted to read the third paragraph which was the peremptory direction to the jury to find that a limited partnership interest was a security. The trial judge read to the jury:The plaintiffs must prove that their respective capital contributions to the D-E Westmont Limited Partnership were securities. A security is defined under the Federal securities laws as being a contract, transaction or scheme whereby a person invests his money in a common enterprise and is lead (sic) to expect profits solely from the efforts of a promoter or third party.He omitted to read:You are instructed that plaintiffs have discharged their burden of proving that they are purchasers of securities and you are instructed to find that each respective capital contribution by a plaintiff to the D-E Westmont Limited Partnership as an investment in that real estate construction project constituted a separate purchase of a security.Plaintiffs assert that their failure to take exception to this omission may be excused by the fact that they had twice before, during the course of the trial, had assertions of like position rejected by the judge. They believed any reassertion of the point that a Limited Partnership agreement is a security as a matter of law would have been futile.37 This Rule states in pertinent part:. . . no party may assign as error the giving or failure to give an obstruction unless he objects thereto before the jury retires to consider its verdict, stating distinctly the matter to which he objects and the grounds for his objection.Fed.R.Civ.P. 51.38 United States v. Wright, 542 F.2d 975, 981-82 (7th Cir. 1976), Cert. denied, 429 U.S. 1073, 97 S.Ct. 810, 50 L.Ed.2d 790 (1977); V-M Corp. v. Bernard Distrib. Co., 447 F.2d 864, 867 (7th Cir. 1971)39 The Supreme Court has determined that a "security" is present where there exists:

52

(1) an investment in a common venture (2) premised on a reasonable expectation of profits (3) to be derived from the entrepreneurial or managerial efforts of others.United Housing Foundation, Inc. v. Forman, 421 U.S. 837, 852, 95 S.Ct. 2051, 2060, 44 L.Ed.2d 621 (1975).40 A question arose at oral argument, but was left unanswered, concerning the possible effect which the actions of Freeman could have had on the claims of the other plaintiffs41 15 U.S.C. 搂 78cc(a). See note 21, Supra

42 This agreement comports generally with our interpretation of previous court rulings in this area. The landmark opinion is the case of Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953), cited by both parties, which clearly states that any attempt to release a claim In futuro is invalid. 346 U.S. at 435, 74 S.Ct. 182. This case has had numerous progeny which have fleshed out the standard, I. e., that Section 29(a) does Not bar a release or settlement of an existing, matured claim but only "anticipatory waivers of compliance with the provisions of the Securities Exchange Act of 1934 . . . ." Korn v. Franchard Corp., 388 F.Supp. 1326, 1329 (S.D.N.Y.1975). See also Special Transportation Services, Inc. v. Balto, 325 F.Supp. 1185, 1187 (D.Minn.1971)43 Citing Murtagh v. University Computing Co., 490 F.2d 810, 816 (5th Cir.), Cert. denied, 419 U.S. 835, 95 S.Ct. 62, 42 L.Ed.2d 62 (1974); Zapach v. Elkins, Morris, Stroud & Co., 375 F.Supp. 669 (M.D.Pa.1973); Childs v. RIC Group, Inc., 331 F.Supp. 1078 (N.D.Ga.1970), Aff'd, 447 F.2d 1407 (5th Cir. 1971) (per curiam)44 The Court, in its now-famous footnote 12, specifically decided not to reach the issue of whether recklessness could constitute "intent" for 10b-5 purposes. This Circuit has decided that it can and does. See Wright v. Heizer, Corp., 560 F.2d 236, 251 (7th Cir. 1977), Cert. denied, 434 U.S. 1066, 98 S.Ct. 1243, 55 L.Ed.2d 767 (1978), Citing Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d 1033 (7th Cir.), Cert. denied, 434 U.S. 875, 98 S.Ct. 225, 54 L.Ed.2d 155 (1977)45 See, e. g., Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d 1033 (7th Cir.), Cert. denied, 434 U.S. 875, 98 S.Ct. 225, 54 L.Ed.2d 155 (1977); Holdsworth v. Strong, 545 F.2d 687 (10th Cir. 1976) (en banc), Cert. denied, 430 U.S. 955, 97 S.Ct. 1600, 51 L.Ed.2d 805 (1977)46 See our discussion in section 2, Infra47 That portion of the Tenth Circuit's opinion in Holdsworth which is particularly interesting for our purposes reads as follows:

53

The importance of Ernst & Ernst in the present case is that it calls for scrutiny of the defense of due diligence and prompts the question whether it applies to these facts even if it is applicable to more extreme circumstances. Since the plaintiff must prove his case in terms of the standard of scienter, doubts are cast on its usefulness where it allows the fraudulent actor to escape liability by saying that if the plaintiff had been diligent, he would not have allowed himself to be cheated. If plaintiff must prove scienter and at the same time the defendant is allowed to defend on this basis, the general effect on the remedy is of great magnitude and the action lies only in an extraordinary case. Even in the exceptional case the defendant would likely be able to demonstrate some lack of diligence on the part of the plaintiff. If contributory fault of plaintiff is to cancel out wanton or intentional fraud, it ought to be gross conduct somewhat comparable to that of defendant.545 F.2d at 693.48 Indeed, the rejection by the trial judge of the "due diligence" instruction tendered by the defendants clearly demonstrates his anticipation of our Sundstrand opinion and his recognition that such a defense was no longer available in a Section 10(b)/Rule 10b-5 securities action49 See our discussion in section (1) at 28-32, Supra50 See, S.E.C. Release No. 33-4877, August 8, 1967, which reads, in pertinent part:Under the Federal Securities Laws, an offering of limited partnership interests and interests in joint or profit sharing real estate ventures generally constitutes an offering of a 'profit sharing agreement' or an 'investment contract' which is a 'security' within the meaning of Section 2(1) of the Securities Act of 1933. . . .. . . (I)f the promoters of a real estate syndication offer investors the opportunity to share in the profits of real estate syndications or similar ventures, particularly when there is no active participation in the management and operation of the scheme on the part of the investors, the promoters are, in effect, offering a 'security'.1 CCH Fed.Sec.L.Rptr. P 1046 at 2062-2063. See also, 17 C.F.R. 搂 240.3a11-1

It should be noted that the term "security," as defined in Section 3(a)(10) of the

Securities Exchange Act of 1934, 15 U.S.C. 搂 78c(a)(10) (1976), includes the term

"investment contract." The two terms have been used interchangeably, and the cases construing either term may also be used interchangeably. See Daniel v. Int'l Brotherhood of Teamsters, 561 F.2d 1223, 1231 (7th Cir. 1977), Cert. granted, 434 U.S. 1061, 98 S.Ct. 1232, 55 L.Ed.2d 761 (1978).51 Bromberg, for example, states:Limited partners . . . are effectively precluded from participation in control by the threat of losing their limited liability. Perforce, they must rely on the investment

54

efforts of general partners for profits. The investment contract concept is particularly applicable. (Citations omitted.)1 Bromberg, Securities Law: Fraud, 搂 4.6(332), at 82.7 (1975)

Jennings and Marsh, in a particularly relevant section which interprets the effect of the Uniform Limited Partnership Act under which the D-E Westmont Limited Partnership was formed state:. . . (U)nder the Uniform Limited Partnership Act, a limited partner may not take part in the control of the business; he must remain a passive investor. Limited partnership interests thus fall squarely within the definition of a 'security'. . . .Jennings & Marsh, Securities Regulation 252 (1968).52 Evidence indicates that the contributions or investments made by the plaintiffs in this suit are as follows:David L. Goodman - $212,300Mollie E. GoodmanLee A. Freeman - $488,790Lee A. Freeman, Jr. - $360,91053 The Limited Partnership Agreement stated, in pertinent part:The purpose of the partnership shall be the residential development of approximately 107.93 acres in Westmont, Illinois, by the construction, ownership and operation thereon of residential structures and related facilities.D-E Westmont Limited Partnership Agreement P 2.54 Ill.Ann.Stat. ch. 1061/2 搂搂 44-73 (Smith Hurd). This law mandates that the signed

and sworn limited partnership certificate filed with the state shall provide:* * * * * *II. The character of the business* * * * * *VI. The amount of cash . . . contributed by each limited partner

Ill.Ann.Stat. ch. 1061/2 搂搂 45(1)(a) II, VI.

55 The United States Court of Appeals for the Fifth Circuit has interpreted the "commonality" requirement somewhat more liberally and has commented upon this Circuit's "more stringent interpretation." SEC v. Koscot Interplanetary, Inc., 497 F.2d 473, 479 n. 8 (5th Cir. 1974). The D-E Westmont Limited Partnership, however, clearly meets the requirements of even our "more stringent interpretation," which is thoroughly discussed in Hirk v. Agri-Research Council, Inc., 561 F.2d 96 (7th Cir. 1977), and Milnarik v. M-S Commodities, Inc., 457 F.2d 274 (7th Cir.), Cert. denied, 409 U.S. 887, 93 S.Ct. 113, 34 L.Ed.2d 144 (1972)

55

56 Cf. Ill.Ann.Stat. ch. 1061/2 搂 32(1)(e) (Smith Hurd). (The Limited Partnership

formed under Illinois state law, as was the D-E Westmont Limited Partnership, shall be dissolved by order of the court upon a showing by either a General or Limited Partner that the "business of the partnership can only be carried on at a loss.")57 Defendants cite United Housing Foundation, Inc. v. Forman, 421 U.S. 837, 855, 95 S.Ct. 2051, 44 L.Ed.2d 621 (1975) in support of their contention that the expectation of a loss which may have certain tax benefits does not constitute the required "reasonable expectation of profit." Defendants, however, fail to note that the Forman Court found no "reasonable expectation of profit" at least in part because the brochures advertising the Co-op living arrangement did not feature the income-producing aspects of a Co-op living arrangement (as a means of off-setting costs) which the plaintiffs there claimed as profits. In contrast, the advertisement brochure which was published by defendants in the present case featured detailed financial projections for the "Healy Farm Project" (which became the D-E Westmont Limited Partnership venture) showing large figures for "net income" and "profit" which could be reasonably expected. These projections lend strong record support to the common-sense presumption that business ventures of this sort are entered into with an expectation of eventual profitability. Thus, defendants' efforts to prove that the "economic reality" of the interests held by plaintiffs, See Daniel v. Int'l Brotherhood of Teamsters, 561 F.2d 1223, 1235-37 (7th Cir. 1977), Cert. granted, 434 U.S. 1061, 98 S.Ct. 1232, 55 L.Ed.2d 761 (1978), belied the legal definition of a limited partnership interest, failed to raise any disputable issue of fact insofar as the profits part of the test is concerned58 Defendants have raised no argument, presented no authority, and reached no conclusion as to how Freeman's participation could even colorably have been construed to affect the legal standing of the interests of Freeman, Jr., and the Goodmans. Because of the view we take of Freeman's participation in the venture, we need not reach the question of whether this distinction makes any difference59 Even if Freeman had, in some small way, personally taken some part in earning the profit which he expected from his investment, we do not believe that would have affected the basic nature of his Limited Partnership interest as an "investment contract." We subscribe to the well-reasoned rationale of Judge Duniway in S.E.C. v. Glenn W. Turner Enterprises, Inc., 474 F.2d 476 (9th Cir.), Cert. denied, 414 U.S. 821, 94 S.Ct. 117, 38 L.Ed.2d 53 (1973), where he stated that the portion of the Howey test which requires that the expected profit accrue "solely" from the efforts of others "should not be read as a strict or literal limitation on the definition of an investment contract." The Supreme Court apparently reached the same conclusion and removed the word "solely" when it updated the Howey Definition in Forman. 421 U.S. at 852, 95 S.Ct. 2051

56

60 See, e. g., Radiation Dynamics, Inc. v. Goldmuntz, 464 F.2d 876, 887 (2d Cir. 1972)61 The trial court, in leaving this complex issue to the jury, provided the jurors with only the most cursory two-line instruction on how to identify a security. This abbreviated instruction, given almost in passing in the midst of extensive instructions on other Counts and issues, undoubtedly had the unfortunate effect of leaving the jurors with nothing more than a lay person's concept of what constituted a "security."62 Although plaintiffs' counsel objected to this instruction, his only stated inaccuracy concerned the "timing of purchase" issue. As noted in section (3) Supra, plaintiffs failed to take exception to the portion of this instruction reading ". . . If you find that a limited partnership interest obtained by a plaintiff constituted a security. . . ." (Emphasis added.)Defendants have not contested the fact that the purchase (or purchases), whenever it (or they) occurred was "for value." See Daniel v. Int'l Brotherhood of Teamsters, 561 F.2d 1223, 1242 (7th Cir. 1977), Cert. granted, 434 U.S. 1061, 98 S.Ct. 1232, 55

L.Ed.2d 761 (1978), Interpreting 15 U.S.C. 搂 77b(3). Thus, the only question we

deal with here is the timing of the "purchase."63 The D-E Westmont Limited Partnership Agreement was executed in June of 1972, but plaintiffs' suit was not filed until February 23, 1976. Thus, if the only "purchase" or "sale" of a security occurred in 1972, the three year statute of limitations would bar any claims in connection therewith, absent the additional proof of fraudulent concealment64 Cases interpreting the statutory terms flexibly include Daniel v. International Brotherhood of Teamsters, 561 F.2d 1223, 1242-1244 (7th Cir. 1977), Cert. granted, 434 U.S. 1061, 98 S.Ct. 1232, 55 L.Ed.2d 761 (1978) ("purchase or sale"); Dasho v. Susquehanna Corp., 380 F.2d 262 (7th Cir.), Cert. denied sub nom. Bard v. Dasho, 389 U.S. 977, 88 S.Ct. 480, 19 L.Ed.2d 470 (1967) ("in connection with"); Divine v. Beneficial Finance Co., 374 F.2d 627 (2d Cir.), Cert. denied, 389 U.S. 970, 88 S.Ct. 463, 19 L.Ed.2d 460 (1967) (same)65 Paragraph (a)(13) provides:The terms "buy" and "purchase" each include any contract to buy, purchase, or otherwise acquire.Paragraph (a)(14) provides:The term "sale" and "sell" each include any contract to sell or otherwise dispose of.We stated in a case cited with approval by the Supreme Court in S. E. C. v. National Securities, 393 U.S. 453, 468, 89 S.Ct. 564, 21 L.Ed.2d 668 (1969), that because of the broad definitions of "sale" and "purchase," "(t)he purpose is evidently to make control of securities transactions reasonably complete and effective to accomplish the

57

purpose of the legislation." Dasho v. Susquehanna Corp., 380 F.2d 262, 266 (7th Cir.), Cert. denied sub nom. Bard v. Dasho, 389 U.S. 977, 88 S.Ct. 480, 19 L.Ed.2d 470 (1967).66 See, e. g., Tcherepnin v. Knight, 389 U.S. 332, 336, 88 S.Ct. 548, 19 L.Ed.2d 564 (1967); Daniel v. Int'l Brotherhood of Teamsters, 561 F.2d 1223, 1231 (7th Cir. 1977), Cert. granted, 434 U.S. 1061, 98 S.Ct. 1232, 55 L.Ed.2d 761 (1978); Hirk v. Agri-Research Council, Inc., 561 F.2d 96, 99-100 (7th Cir. 1977)67 464 F.2d at 887. The question of the materiality of the information allegedly withheld by the General Partners in the case at hand was never addressed by the trial court in its instructions or by either party on appeal. We therefore express no opinion on the materiality (defined by Supreme Court in TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976)) of any fact68 This later became 700 shares when another prospective purchaser failed to purchase his scheduled 200 shares. 464 F.2d at 881, n. 369 Further sales of 2800 more shares followed, in August 1964, to a "Minnesota Group" which was not involved in the jury verdict, having been dismissed from the case as defendants by the trial court at an earlier stage70 464 F.2d at 884, n. 871 Id. at 89172 See Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d 1033, 1049-1051 (7th Cir.), Cert. denied, 434 U.S. 875, 98 S.Ct. 225, 54 L.Ed.2d 155 (1977); Wright v. Heizer Corp., 560 F.2d 236, 250 (7th Cir. 1977), Cert. denied, 434 U.S. 1066, 98 S.Ct. 1243, 55 L.Ed.2d 767 (1978)73 See, e. g., Goodman v. Poland, 395 F.Supp. 660, 690-91 (D.Md.1975); Rochez Bros., Inc. v. Rhoades, 353 F.Supp. 795, 801-02 (W.D.Pa.), Aff'd as to liability, 491 F.2d 402 (3d Cir. 1973)74 When all of these circumstances are combined with the fact that much of the money the General Partners collected from the purchasers was eventually paid to themselves (I. e., companies owned by or associated with the General Partners), it becomes apparent that removing from the seller-defendants (General Partners) all obligation to inform the Limited Partners of material information After the date of the Limited Partnership Agreement would certainly not achieve the "goal of fundamental fairness in the securities marketplace."75 See text at note 30, Supra

58

76 Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d 1033 (7th Cir.), Cert. denied, 434 U.S. 875, 98 S.Ct. 225, 54 L.Ed.2d 155 (1977)77 553 F.2d 1049-5178 Plaintiffs were also, therefore, "purchasers" of securities on each of these occasions as required by the "Birnbaum Rule," enunciated in Birnbaum v. Newport Steel Corp., 193 F.2d 461 (2d Cir.), Cert. denied, 343 U.S. 956, 72 S.Ct. 1051, 96 L.Ed. 1356 (1952), and recently approved in Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975)79 Defendants make what appears to be a collateral estoppel type of argument, asserting that, even if each contribution Were considered a separate purchase, the jury, in deciding Counts II and III, must have already made a determination that none of the individual contributions was "wrongfully" induced through action that amounted to fraud (Count II) or breach of fiduciary duty (Count III). While it is, apparently, conceivable that the jury could have made the necessary determinations which would have precluded a retrial, a precise reading of the instructions shows that we can make no such assumption in this caseThe trial court's instructions on Count II were framed entirely by five elements, all involving "false representations" by the defendants. Thus, the jury could have found that defendants made no "false representations" and, on that basis alone, decided against the plaintiffs. Such a determination clearly would not decide the issue of whether defendants "omitted to state material facts," a prime aspect of a 10b-5 cause of action and one on which plaintiffs clearly relied in Count I. Also, the trial court's instructions on fraud obviously placed a "reasonable inquiry" or "due diligence" responsibility on plaintiffs which would not be present in a 10b-5 cause of action.Similarly, the trial court's instructions on Count III (breach of fiduciary duty) indicated that the jury could decide for plaintiffs only if it found that the "partnership losses were sustained as a direct result of the defendants' fraud, bad faith, or willful disregard of a duty in conducting partnership affairs." Thus the jury could have found against plaintiffs because it believed the losses were incurred for other reasons. Clearly, this would not be determinative of the 10b-5 cause of action because it is not the Cause of the losses which is significant but, rather, the Failure to inform of those losses.It is true, as pointed out in the petition for rehearing, that another passage in the instructions with respect to Count III tells the jury that, if the defendants failed to disclose material information relating to partnership affairs and the plaintiffs were thereby injured, then the defendants were liable to the plaintiffs. For several reasons, however, we cannot infer from the verdict on Count III for defendants that the jury found there was no failure to disclose that caused injury to the plaintiffs. In the first place, the basis for the verdict on Count III may have been the release, which could have been effective as to Count III but not as to Count I because of the differing

59

standards discussed earlier in this opinion. Moreover, apart from that possibility, the jury was not told that it was enough if an injury caused by other events could have been avoided by disclosure, nor, in view of what they had been told about when plaintiffs were committed, would they have understood how injury could have been avoided. Also, another instruction given shortly thereafter states that in order to find in favor of the plaintiffs on the breach of fiduciary responsibilities theory the jury would have to prove all of certain listed propositions, none of which had anything to do with failure to disclose.In sum, we do not think that the jury's verdict on Count III was necessarily based on a finding that there was no failure to disclose injuring plaintiffs.80 This, of course, means that the judgment on the jury verdict for Count II and for Count III will remain undisturbed and that the new trial will be limited to Count I, plaintiffs' federal securities law Count

4.

5. 人人贷SECURITIES ACT OF 1933 Release No. 8984 / November 24, 2008

ADMINISTRATIVE PROCEEDING File No. 3-13296 In the Matter of PROSPER MARKETPLACE, INC., Respondent.

ORDER INSTITUTING CEASE-ANDDESIST PROCEEDINGSPURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933, MAKING FINDINGS, AND IMPOSING A CEASE-AND-DESIST ORDER

I

The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”), against Prosper Marketplace, Inc. (“Prosper” or “Respondent”).

II.

In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the “Offer”) which the Commission has determined

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to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission’s jurisdiction over it and the subject matter of these proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933, Making Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below.

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III.

On the basis of this Order and Respondent’s Offer, the Commission finds that:

Respondent

Prosper is a Delaware corporation based in San Francisco, California, that owns and operates an online lending platform on its website, www.Prosper.com. Prosper was previously incorporated as JC Capital Solutions, Inc. (“JC Capital”). Prosper is a private corporation and is not registered with the Commission.

Summary

Prosper operates an online lending platform connecting borrowers with lenders. The loan notes issued by Prosper pursuant to this platform are securities and Prosper, from approximately January 2006 through October 14, 2008, violated Sections 5(a) and (c) of the Securities Act, which prohibit the offer or sale of securities without an effective registration statement or a valid exemption from registration.

Prosper’s Platform

Prosper’s lending platform functions like a double-blind auction, connecting individuals who wish to borrow money, or “borrowers,” with individuals or institutions who wish to commit to purchase loans extended to borrowers, referred to on the platform as “lenders.” Lenders and borrowers register on the website and create Prosper identities. They are prohibited from disclosing their actual identities anywhere on the Prosper website. Borrowers request three-year, fixed rate, unsecured loans in amounts between $1,000 and $25,000 by posting “listings” on the platform indicating the amount they want to borrow and the maximum interest rate they are willing to pay. Prosper assigns borrowers a credit grade based on a commercial credit score obtained from a credit bureau, but Prosper does not verify personal information, such as employment and income. Potential lenders bid on funding all or portions of loans for specified interest rates, which are typically higher than rates available from depository accounts at financial institutions. Each loan is usually funded with bids by multiple lenders. After an auction closes and a loan is fully bid upon, the borrower receives the requested loan with the interest rate fixed by Prosper at the lowest rate acceptable to all winning bidders. Individual lenders do not actually lend money directly to the borrower; rather, the borrower receives a loan from a bank with which Prosper has contracted. The interests in that loan are then sold and assigned through Prosper to the lenders, with each lender receiving an individual non-recourse promissory note.

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Since the inception of its platform in January 2006, Prosper has initiated approximately $174 million in loans. Prosper collects an origination fee from each borrower of one to three percent of loan proceeds and collects servicing fees from each lender from loan payments at an annual rate of one percent of the outstanding principal balance of the notes. Prosper administers the collection of loan payments from the borrower and the distribution of such payments to the

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lenders. Prosper also initiates collection of past due loans from borrowers and assigns delinquent loan accounts to collection agencies. Lenders and borrowers are prohibited from transacting directly and are unable to learn each others’ true identities.

Discussion

The notes offered by Prosper are investments. Lenders expect a profit on their investments in the form of interest, which is at a rate generally higher than that available from depository accounts at financial institutions. Prosper’s website has included statements that the Prosper notes provide returns superior to those offered by alternative investments such as equity stocks, CDs and money markets. The Prosper website has also stated that it offers lenders ways to “spread your risk out and ensure a more reliable return” and describes how lenders are allowed to use payments from an outstanding loan to purchase a new loan “in order to maximize returns.” In addition, marketing to institutional lenders on the Prosper website characterizes the platform as an alternative to “stock or bond returns” that is “crucial for prudent portfolio management” in “turbulent markets.” Testimonials published on the Prosper website show that customers have used Prosper notes as investment vehicles. Prosper also offers Portfolio Plans that allow lenders to automatically bid on loans based on estimates of risk and return characterized by Prosper.

Lenders rely on the efforts of Prosper because Prosper’s efforts are instrumental to realizing a return on the lenders’ investments. Prosper lenders are effectively passive with respect to elements important to realizing profit on their investments and Prosper is instrumental in each of these elements. Prosper established and maintains the website platform, without which none of the loan transactions could be effected. Prosper provides mechanisms for attracting lenders and borrowers, facilitating the exchange of information between borrowers and lenders, coordinating bids, and effecting the loans. It provides borrower information to potential lenders via the loan listings, including credit ratings. Prosper provides a matrix for evaluating performance and potential returns in the form of historical loan performance, Prosper Marketplace and individual borrower performance, and delinquency activity, among other things. Prosper manages the bidding and subscription process for every loan and has the sole contractual right to service the loans, including administering the borrower and lender accounts, and providing monthly statements that reflect payments made and received on the loan notes, as well as amounts available for bidding on new notes.

Furthermore, under the terms of the notes, Prosper has the sole right to act as loan servicer of the notes. In this capacity, Prosper collects repayments of loans and interest, contacts delinquent borrowers for repayment, and reports loan payments and delinquencies to credit reporting agencies. Prosper also exclusively manages the

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process of referring delinquent loans to collection agencies for payment, and selling defaulted loans to debt purchasers. Since the lender does not know the borrower’s identity, the lender would be unable in any event to pursue his or her rights as a noteholder in the event of default. Further, if a lender chooses to participate in Prosper’s Portfolio Plan, whereby lenders are permitted to choose portfolios that automatically allocate the lender’s funds among various loans based on risk and return characteristics categorized by Prosper, Prosper chooses the loans on which a bid is made. Lastly, the continued existence and operation of the Prosper platform is essential to the loan transactions taking place. Prosper lenders are too geographically diverse and diffuse to come together without Prosper. 3

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They lack the requisite experience to run a loan auction or to create and service a loan package. Rather, the Prosper lenders rely on Prosper’s continued operation of the platform in order to transact and to recoup any gain on their investments.

Legal Discussion

The notes offered by Prosper are securities pursuant to Section 2(a)(1) of the Securities Act and under the Supreme Court’s decisions in both SEC v. W. J. Howey Co., 328 U.S. 293 (1946), and Reves v. Ernst & Young, Inc., 494 U.S. 56 (1990).

A. Application of the Howey Investment Contract Analysis

Pursuant to SEC v. W. J. Howey Co., 328 U.S. 293 (1946), an investment contract exists if there is present “an investment of money in a common enterprise with profits to come solely from the efforts of others.” Id. at 301. An investment contract is a security under Section 2(a)(1) of the Securities Act, the offer or sale of which must be registered pursuant to Section 5 of the Securities Act.

The financial instrument offered by Prosper meets the definition of an investment contract as set forth in Howey. As discussed above, there is an investment of money when lenders invest money to purchase a loan. The lenders bear one-hundred percent of the risk of loss each time they fund a Prosper loan because the Prosper loans are non-recourse.

There is a common enterprise for several reasons. For example, a common enterprise exists because lenders and borrowers are dependent on Prosper in order to engage in new loans or to complete the timely repayment of loans already funded. A common enterprise also exists because the vast majority of Prosper loans are funded by more than one lender and because the majority of lenders fund more than one loan. All lenders would be negatively affected if Prosper were unable to operate the platform. In addition, there is a common enterprise between Prosper and its members because borrowers pay Prosper an origination fee of one to three percent of the loan, and each lender pays annual servicing fees to Prosper of one percent of the outstanding principal balance of the notes.

Further, lenders are dependent upon the efforts of Prosper to realize any return on their investment. As discussed above, borrowers and lenders are prohibited from transacting directly and must rely on Prosper to execute each element of the loan creation and repayment process.

B. Application of the Reves Note Analysis

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A note is presumed to be a security under the Supreme Court’s opinion in Reves v. Ernst & Young, 494 U.S. 56 (1990), unless it is of a type specifically identified as a non-security. The types of non-security notes identified in Reves include notes delivered in a consumer financing; notes secured by a mortgage on a home; short-term notes secured by a lien on a small business or its assets; short-term notes evidenced by accounts receivable; notes evidencing “character” loans to bank customers; notes formalizing open account debts incurred in the ordinary course of business; and notes evidencing loans from commercial banks for ordinary operations. Id. at 65. A note that

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is not among the list identified in Reves is a security unless it bears a “strong family resemblance” to the non-security notes identified in the opinion. Id. at 64-65. Reves established a four-part family resemblance test to determine whether a note is a security, which is comprised of the following factors: (i) the motivations of the buyer and seller; (ii) the plan of distribution; (iii) the reasonable expectations of the investing public; and (iv) the existence of an alternate regulatory regime. Id. at 66-67. If a note fails the family resemblance test, it is deemed a security and the offer or sale of such security must be registered pursuant to Section 5 of the Securities Act. The Prosper loan notes are securities under Reves because they do not fall into any of the enumerated categories of non-security notes, and they fail the family resemblance test.

With regard to the motivations of the buyer and seller, as discussed above, Prosper lenders are motivated by the desire to obtain a better return on their money than they otherwise could in another venue. While some Prosper lenders may be motivated, in part, by altruism, altruistic and profit motives are not mutually exclusive. See In the Matter of Robin Bruce McNabb, Rel. No. 3443411 (Oct. 4,

2000), aff’d, 298 F.3d 1126 (9th Cir. 2002).

With respect to the plan of distribution, the Prosper notes are offered and sold on the internet to the public at large. There is no special level of financial sophistication or expertise that Prosper lenders must have. This wide dissemination and solicitation to the public with no attempt to limit investors is indicative of a security. See Reves, 494 U.S. at 68 (the notes “were…offered and sold to a broad segment of the public, and that is all we have held to be necessary to establish the requisite ‘common trading’ in an instrument”); Pollack v. Laidlaw Holdings, Inc., 27 F.3d 808, 814 (2d Cir. 1994) (concluding that the broad-based, unrestricted sales to the general investing public supported a finding that mortgage participations were securities under federal securities laws).

In analyzing the expectations of the investing public, the lenders in this instance, the relevant issue is what a reasonable investor would believe about the character of the transaction, “even where an economic analysis of the circumstances of the particular transaction might suggest that the instruments are not ‘securities’ as used in that transaction.” Reves, 494 U.S. at 66. The manner in which a transaction is characterized in advertisements is illustrative, and whether there is a “valuable return on an investment, which undoubtedly includes interest.” Id. at 69. As discussed above, Prosper lenders reasonably expect a valuable return on loaned funds and would reasonably believe that the Prosper loans are investments.

Finally, with regard to whether an alternate regulatory scheme exists to reduce risk to potential investors, there are currently no appropriate regulatory safeguards for Prosper lenders, such as those against misleading statements by a

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borrower about the purpose of a loan, the borrower’s employment and income, or even the borrower’s identity, or against misleading statements by Prosper.

Thus, the Prosper notes are securities under Reves because: (i) Prosper lenders are motivated by an expected return on their funds; (ii) the Prosper loans are offered to the general public; (iii) a reasonable investor would likely expect that the Prosper loans are investments; and

5

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(iv) there is no alternate regulatory scheme that reduces the risks to investors presented by the platform.

As a result of the conduct described above, Prosper violated Section 5(a) of the Securities Act, which states that unless a registration statement is in effect as to a security, it shall be unlawful for any person, directly or indirectly, to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to sell such security through the use or medium of any prospectus or otherwise; or to carry or cause to be carried through the mails or in interstate commerce, by any means or instruments of transportation, any such security for the purpose of sale or for delivery after sale.

Also as a result of the conduct described above, Prosper violated Section 5(c) of the Securities Act, which states that it shall be unlawful for any person, directly or indirectly, to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to offer to sell or offer to buy through the use or medium of any prospectus or otherwise any security, unless a registration statement has been filed as to such security.

IV.

In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondent Prosper’s Offer.

Accordingly, it is hereby ORDERED that:

Pursuant to Section 8A of the Securities Act, Respondent Prosper cease and desist from committing or causing any violations and any future violations of Sections 5(a) and (c) of the Securities Act.

By the Commission.

Florence E. Harmon Acting Secretary 6

6. 的（五）的三、证券的发行

70

海富投资与甘肃世恒最高人民法院再审判决书

中华人民共和国最高人民法院

民 事 判 决 书

（2012）民提字第 11号

申请再审人(一审被告、二审被上诉人):甘肃世恒有色资源再利用有限公司。

住所地:甘肃省定西市安定区凤翔镇友谊村。

法定代表人:陆波，该公司总经理。

委托代理人:孙庚，甘肃德合律师事务所律师。

申请再审人(一审被告、二审被上诉人) :香港迪亚有限公司。

住所地:香港特别行政区尖沙咀九龙广东道 7号新电信中心 705室。

法定代表人:陆波，该公司总经理。

委托代理人:孙靡，甘肃德合律师事务所律师。

被申请人(一审原告、二审上诉人) :苏州工业园区海富投资有限公司。住所

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地:江苏省苏州工业园区唯亭镇星澄路 9 号青剑湖商业广场 B-216号。

法定代表人:张亦斌，该公司执行董事。

委托代理人:计静怡，北京市法大律师事务所律师。

委托代理人:涂海涛，北京市法大律师事务所律师。

一审被告、二审被上诉人:陆波，女，汉族， 1963 年 1 月 24 日出生，住上

海市杨浦区仁德路 100 弄 32 号 302室，现住甘肃省定西市安定区凤翔镇友谊村。

委托代理人:孙赓，甘肃德合律师事务所律师。

申请再审人甘肃世恒有色资源再利用有限公司(以下简称世恒公司)、香港迪

亚有限公司(以下简称迪亚公司)为与被申请人苏州工业园区海富投资有限公司

(以下简称海富公司)、陆波增资纠纷一案，不服甘肃省高级人民法院(2011)甘民

二终字第 96 号民事判决，向本院申请再审。本院以(2011) 民申字第 1522号民事

裁定书决定提审本案，并依法组成合议庭于 2012 年 4 月 10 日公开开庭进行了

72

审理。世恒公司、迪亚公司、陆波的委托代理人孙庚，海富公司的委托代理人计

静怡到庭参加了诉讼，本案现已审理终结。

2009 年 12 月 30 日，海富公司诉至兰州市中级人民法院，请求

判令世恒公司、迪亚公司和陆波向其支付协议补偿款 1998.2095 万元并承担

本案诉讼费及其它费用。

甘肃省兰州市中级人民法院一审查明:2007 年 11 月 1 日前，甘肃众星铸业

有限公司(以下简称众星公司)、海富公司、迪亚公司、陆波共同签订一份《甘肃众

星绊业有限公司增资协议书}(以下简称《增资协议书}) ，约定:众星公司注册资

本为 384 万美元，迪亚公司占投资的 100% 。各方同意海富公司以现金 2000 万

元人民币对众星公司进行增资，占众星公司增资后注册资本的 3.859毛，迪亚

公司 96.15%。依据协议内容，迪亚公司与海富公司签订合营企业合同及修订公

司章程，并于合营企业合同及修订后的章程批准之日起 10 日内一次性将认缴的

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增资款汇入众星公司指定的账户。合营企业合同及修订后的章程，在报经政府主

管部门批准后生效。海富公司在履行出资义务时，陆波承诺于 2007年 12 月 31

日之前将四川省峨边县五渡牛岗铅锋矿过户至众星公司名下。募集的资金主要用

于以下项目: 1、收购甘肃省境内的一个年产能大于 1. 5 万吨的特冶炼厂；2 、开

发四川省峨边县牛岗矿山；3 、技入 500 万元用于循环冶炼技术研究。第七条特

别约定第一项：本协议签订后，众星公司应尽快成立“公司改制上市工作小

组”；着手筹备安排公司改制上市的前期准备工作，工作小组成员由股东代表

和主要经营管理人员组成。协议各方应在条件具备时

将公司改组成规范的股份有限公司，并争取在境内证券交易所发行上市。

第二项业绩目标约定：众星公司 2008 年净利润不低于 3000 万元人民币。如果众

星公司 2008年实际净利润完不成 3000 万元，海富公司有权要求众星公司予以

74

补偿，如果众星公司未能履行补偿义务，海富公司有权要求迪亚公司履行补偿

义务。补偿金额=(1-2008年实际净利润/3000 万元)x本次投资金额。第四项股权

回购约定：如果至 2010 年 10 月 20 日，由于众星公司的原因造成无法完成上市，

则海富公司有权在任一时刻要求迪亚公司回购届时海富公司持有之众星公司的

全部股权，迪亚公司应自收到海富公司书面通知之日起 180 日内按以下约定回

购金额向海富公司一次性支付全部价款。若自 2008年 1 月 1 日起，众星公司的

净资产年化收益率超过 10%，则迪亚公司回购金额为海富公司所持众星公司股

份对应的所有者权益账面价值；若自 2008年 1 月 1 日起，众星公司的净资产年

化收益率低于 10呢) ，则迪亚公司回购金额为(海富公司的原始投资金额-补偿

金额) x (1 + 10%x 投资天数/360)。此外，还规定了信息批露约定、违约责任等，

还约定该协议自各方授权代表签字并加盖了公章，与协议文首注明之签署日期

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生效。协议未作规定或约定不详之事直，应参照经修改后的众星公司章程及股东

间的投资合同(若有)办理。

2007 年 11 月 1 日，海富公司、迪亚公司签订《中外合资经营甘

肃众星锌业有限公司合同》 (以下简称《合资经营合同》)，有关约

定为：众星公司增资扩般将注册资本增加至 399.38 万美元，海富公司决定

受让部分股权，将众星公司由外资企业变更为中外合资经营企业。在合资公司的

设立部分约定，合资各方以其各自认缴的合资公司注册资本出资额或者提供的

合资条件为限对合资公司承担责任。海富公司出资 15.38 万美元，占注册资本的

3.85%；迪亚公司出资 384 万美元，占注册资本的 96.15% 。海富公司应于本合同

生效后十日内一次性向合资公司缴付人民币 2000 万元，超过其认缴的合资公司

注册资本的部分，计入合资公司资本公积金。在第六十八条、第六十九条关于合

资公司利润分配部分约定：合资公司依法缴纳所得税和提取各项基金后的利润，

76

按合资方各持股比例进行分配。合资公司上一个会计年度亏损未弥补前不得分配

利润。上一个会计年度未分配的利润，可并入本会计年度利润分配。还规定了合

资公司合资期限、解散和清算事宜。还特别约定：合资公司完成变更后，应尽快

成立“公司改制上市工作小组”，着手筹备安排公司改制上市的前期准备工作，

工作小组成员由股东代表和主要经营管理人员组成。合资公司应在条件具备时改

组成立为股份有限公司，并争取在境内证券交易所发行上市。如果至 2010年 10

月 20 日，由于合资公司自身的原因造成无法完成上市，则海富公司有权在任一

时刻要求迪亚公司回购届时海富公司持有

的合资公司的全部股权。合同于审批机关扯准之日起生效。《中外合资经营

甘肃众星锌业有限公司章程》（以下简称《公司章程》)第六十二条、六十三条与

《合资经营合同》第六十八条、六十九条内容相同。之后，海富公司依约于 2007

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年 11 月 2 日缴存众星公司银行账户人民币 2000 万元，其中新增注册资本

114.7717 万元，资本公积金 1885.2283 万元。2008年 2 月 29 日，甘肃省商务厅

甘商外资字【2008】79号文件《关于甘肃众星锌业有限公司增资及股权变更的批

复》同意增资及股权变更，并批准“投资双方于 2007年 11 月 1 日签订的增资协

议、合资企业合营合同和章程从即日起生效”。随后，众星公司依据该批复办理

了相应的工商变更登记。2009 年 6 月，众星公司依据该批复办理了相应的工商

变更登记。2009 年 6 月，众星公司经甘肃省商务厅批准，到工商部门办理了名

称及经营范围变更登记手续，名称变更为甘肃世恒有色资源再利用有限公司。另

据工商年检报告登记记载，众星公司 2008年度生产经营利润总额 26858.13 元，

净利润 26858.13 元。

一审法院认为，根据双方的诉辩意见，案件的争议焦点为：1 、

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《增资协议书》第七条第(二)项内容是否具有法律效力；2 、如果有

效，世恒公司、迪亚公司、陆波应否承担补偿责任。

经审查，《增资协议书》系双方真实意思表示，但第七条第(二)项内容即世

恒公司 2008 年实际净利润完不成 3000 万元，海富公司有权要求世恒公司补偿

的约定，不符合《中华人民共和国中外合资经营企业法》第八条关于企业利润根

据合营各方注册资本的比例进行分配的规定，同时，该条规定与《公司章程》的

有关条款不一致，也损害公司利益及公司债权人的利益，不符合《中华人民共和

国公司法》第二十条第一款的规定。因此，根据《中华人民共和国合同法》第五十

二条(五)项的规定，该条由世恒公司对海富公司承担补偿责任的约定违反了法

律、行政法规的强制性规定，该约定无效，故海富公司依据该条款要求世恒公司

承担补偿责任的诉请，依法不能支持。由于海富公司要求世恒公司承担补偿责任

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的约定无效，因此，海富公司要求世恒公司承担补偿责任失去了前提依据。同时

《增资协议书》第七条第(二)项内容与《合资经营合同》中相关约定内容不一致，

依据《中华人民共和国中外合资经营企业法实施条例》第十条第二款的规定，应

以《合资经营合同》内容为准，故海富公司要求迪亚公司承担补偿责任的依据不

足，依法不予支持。陆波虽是世恒公司的法定代表人，但其在世恒公司的行为代

表的是公司行为利益，并且《增资协议书》第七条第(二)项内容中，并没有关于

由陆波个人承担补偿义务的约定，故海富公司要求陆波个人承担补偿责任的诉

请无合同及法律依据，依法应予驳回。至于陆波未按照承诺在 2007年 12 月 31

日之前

将四川省峨边县五渡牛岗铅锌矿过户至世恒公司名下，涉及对世

恒公司及其股东的违约问题，不能成为本案陆波承担补偿责任的

理由。

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综上，一审法院认为海富公司的诉请依法不能支持，世恒公司、迪亚公司、

陆波不承担补偿责任的抗辩理由成立。依照《中华人民共和国合同法》第五十二

条(五)项、《中华人民共和国公司法》第六条第二款、第二十条第一款、《中华人民

共和国中外合资经营企业法》第二条第一款、第二款、第三条、《中华人民共和国

中外合资经营企业法实施条例》第十条第二款之规定，该院于 2010年 12 月 31

日作出(2010)兰法民三初字第 71 号民事判决，驳回海富公司的全部诉讼请求。

海富公司不服一审判决，向甘肃省高级人民法院提起上诉。

二审查明的事实与一审一致。

二审法院认为：当事人争议的焦点为《增资协议书》第七条第

(二)项是否具有法律效力。本案中，海富公司与世恒公司、迪亚公司、陆波

四方签订的协议书虽名为《增资协议书》，但纵观该协议书全部内容，海富公司

支付 2000 万元的目的并非仅享有世恒公司 3.85% 的股权(计 15.38 万美元，折合

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人民币 114.771 万元)，期望世恒公司经股份制改造并成功上市后，获取增值的

股权价值才是其缔结协议书并出资的核心目的。基于上述投资目的，海富公司等

四方当事人在《增资协议书》第七条第(二)项就业绩目标进行了约定，即“世恒

公司 2008年净利润不低于 3000 万元，海富公司有权要求世恒公司予以补偿，

如果世恒公司未能展行补偿义务，海富公司有权要求迪亚公司履行补偿义务。补

偿金额=(1-2008年实际净利润/3000 万元) x 本次投资金额”。四方当事人就世恒

公司 2008 年净利润不低于 3000 万元人民币的约定，仅是对目标企业盈利能力

提出要求，并未涉及具体分配事宜；且约定利润如实现，世恒公司及其股东均

能依据《中华人民共和国公司法》、《合资经营合同》、《公司章程》等相关规定获

得各自相应的收益，也有助于债权人利益的实现，故并不违反法律规定。而四方

当事人就世恒公司 2008年实际净利润完不成 3000 万元，海富公司有权要求世

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恒公司及迪亚公司以一定方式予以补偿的约定，则违反了投资领域风险共担的

原则，使得海富公司作为投资者不论世恒公司经营业绩如何，均能取得约定收

益而不承担任何风险。参照《最高人民法院<</FONT>关于审理联营合同纠纷案

件若干问题的解答>》第四条第二项关于“企业法人、事业法人作为联营一方向

联营体投资，但不参加共同经营，也不承担联营的风险责任，不论盈亏均按期

收回本息，或者按期收取固定利润的，是明为联营，实为借贷，违反了有关金

融法规，应当确认合同无效”之规定，《增资协议书》第七条第(二)项部分该约

定内容，因违反《中华人民共和国合同法》第五十二条第(五)项之规定应认定无

效。海富公司除已计入世恒公司注册资本的 114.771 万元外，其余 1885.2283 万

元资金性质应属名为投资，实为借贷。虽然世恒公司与迪亚公司的补偿承诺亦归

于无效，但海富公司基于对其承诺的合理依赖而缔约，故世恒公司、迪亚公司对

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无效的法律后果应负主要过错责任。根据《中华人民共和国合同法》第五十八条

之规定，世恒公司与迪亚公司应共同返还海富公司 1885.2283 万元及占用期间

的利息，因海富公司对于无效的法律后果亦有一定过错，如按同期银行贷款利

率支付利息不能体现其应承担的过错责任，故世恒公司与迪亚公司应按同期银

行定期存款利率计付利息。

因陆波个人并未就《增资协议书》第七条第(二)项所涉补偿问题向海富公司

作出过承诺，且其是否于 2007 年 12 月 31 日之前将四川省峨边县五渡牛岗铅锋

矿过户至世恒公司名下与本案不属同一法律关系，故海富公司要求陆波承担补

偿责任的诉请无事实及法律依据，依法不予支持。

关于世恒公司、迪亚公司、陆波在答辩中称《增资协议书》已

被之后由海富公司与迪亚公司签订的《合资经营合同》取代，《增

资协议书》第七条第(二)项对各方已不具有法律约束力的主张。因《增资协

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议书》与《合资经营合同》缔约主体不同，各自约定的权利义务也不一致，且

2008年 2 月 29 日，在甘肃省商务厅甘商外资字【2008】79号《关于甘肃众星锌业

有限公司增资及股权变更的批复》中第二条中明确载明“投资双方 2001年 11 月

1 日签订的增资协议、合资企业合营合同和章程从即日起生效”。故其抗辩主张

不予支持。该院认为一审判决认定部分事实不清，导致部分适用法律不当，应予

纠正。依照《中华人民共和国民事诉讼法》第一百五十三条第(二)项、第(三)项、第

一百五十八条之规定，该院判决：一、撤销兰州市中级人民法院(2010)兰法民三

初字第 71 号民事判决；二、世恒公司、迪亚公司于判决生效后 30 日内共同返还

海富公司 1885.2283 万元及利息(自 2007年 11 月 3 日起至付清之日止按照中国

人民银行同期银行定期存款利率计算)。

世恒公司、迪亚公司不服甘肃省高级人民法院(2011 )甘民二

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终字第 96 号民事判决，向本院申请再审，请求裁定再审，撤销二审

判决，维持一审判决。理由是：一、海富公司的诉讼请求是要求世

恒公司、迪亚公司和陆波支付利润补偿款 19982095 元，没有请求

将计入合资公司资本金的 18852283 元及利息返还。因此二审判决判令世恒

公司、迪亚公司共同返还 18852283 元及利息超出了海富公司诉讼请求和上诉请

求，程序违法。同时， 18852283 元及利息已超过 2200 万元，明显超出诉讼标的

二、二审判决将海富公司缴付并计入合资公司资本公积金的 18852283 元认定为

“名为投资实为借贷”，没有证据证明，也违反法律规定。三、二审判决参照最

高人民法院《关于审理联营合同纠纷案件若干问题的解答》，适用法律错误。海

富公司与迪亚公司、世恒公司之间不存在联营关系。四、《合资经营合同》第九十

七条约定：该合同取代双方就上述交易事宜做出的任何口头或书面的协议、合同

陈述和谅解。所以《增资协议书》对各方已不具有约束力。迪亚公司并未依照《增

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资协议书》第 7.2条或《合资经营合同》取得任何款项，判令迪亚公司承担共同返

还本息的责任没有事实根据。

海富公司答辩称:：一、《增资协议书》是四方当事人为达到上

市目的而签订的融资及股份制改造一揽子协议书，不是《合资经营合同》所

能容纳得了的。二、二审法院判令世恒公司和迪亚公司返还的是股本金之外的有

特别用途的溢价款，不涉及抽逃出资问题。二、陆波在《增资协议书》中只代表其

个人，是合同当事人的个人行为，因其违反《增资协议书》的约定应承担补偿责

任。四、陆波的行为涉嫌刑事犯罪，其采取虚报注册资本的手段诱使海富公司误

信其公司的经济实力，骗取海富公司资金。请求调取证据查证事实或将此案移交

公安机关侦查。

本院审查查明的事实与一、二审查明的事实一致。

本院认为：2009年 12 月，海富公司向一审法院提起诉讼时的诉讼请求是

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请求判令世恒公司、迪亚公司、陆波向其支付协议补偿款 19982095 元并承担本案

诉讼费用及其它费用，没有请求返还投资款。因此二审判决判令世恒公司、迪亚

公司共同返还投资款及利息超出了海富公司的诉讼请求，是错误的。

海富公司作为企业法人，向世恒公司投资后与迪亚公司合资经营，故世恒

公司为合资企业。世恒公司、海富公司、迪亚公司、陆波在《增资协议书》中约定，

如果世恒公司实际净利润低于 3000 万元，则海富公司有权从世恒公司处获得补

偿，并约定了计算公式。这一约定使得海富公司均投资可以取得相对固定的收益

该收益脱离了世恒公司的经营业绩，损害了公司利益和公司债权人利益，一审

法院、二审法院根据《中华人民共和国公司法》第二十条和《中华人民共和国中外

合资经营企业法》第八条的规定认定《增资协议书》中的这部分条款无效是正确

的。但二审法院认定海富公司 18852283 元的投资名为联营实为借贷，并判决世

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恒公司和迪亚公司向海富公司返还该笔投资款，没有法律依据，本院予以纠正。

《增资协议书》中并无由陆波对海富公司进行补偿的约定，海富公司请求陆

波进行补偿，没有合同依据。此外，海富公司称陆波涉嫌犯罪，没有证据证明，

本院对该主张亦不予支持。

但是，在《增资协议书》中，迪亚公司对于海富公司的补偿承诺并不损害公

司及公司债权人的利益，不违反法律法规的禁止性规定，是当事人的真实意思

表示，是有效的。迪亚公司对海富公司承诺了众星公司 2008年的净利润目标并

约定了补偿金额的计算方法。在众星公司 2008年的利润未达到约定目标的情况

下，迪亚公司应当依约应海富公司的请求对其进行补偿。迪亚公司对海富公司请

求的补偿金额及计算方法没有提出异议，本院予以确认。木土的 BLOG

根据海富公司的诉讼请求及本案《增资协议书》中部分条款无效的事实，本

院依照《中华人民共和国合同法》第六十条、《中华人民共和国民事诉讼法》第一

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百五十三条第一款第二项、第一百八十六条的规定，判决如下：

一、撤销甘肃省高级人民法院(2011 )甘民二终字第 96 号民事判决；

二、本判决生效后三十日内，迪亚公司向海富公司支付协议补偿款

19982095 元。如未按本判决指定的期间履行给付义务，则按《中华人民共和国民

事诉讼法》第二百二十九条的规定，加倍支付延迟履行期间的债务利息；

三、驳回海富公司的其他诉讼请求。

一审案件受理费 155612.3 元、财产保全费 5000 元、法院邮寄费 700 元、二审

案件受理费 155612.3 元，合计 316924.6 元，均由迪亚公司负担。

四、资产证券化

中国证券监督管理委员会公告〔2014〕49号现公布《证券公司及基金管理公司子公司资产证券化业务管理规定》及配套

《证券公司及基金管理公司子公司资产证券化业务信息披露指引》、《证券公司及基金管理公司子公司资产证券化业务尽职调查工作指引》，自公布之日起施行。

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附件 1：证券公司及基金管理公司子公司资产证券化业务管理规定附件 2：证券公司及基金管理公司子公司资产证券化业务信息披露指引附件 3：证券公司及基金管理公司子公司资产证券化业务尽职调查工作指引

[1-2]   

中国证监会2014年 11 月 19 日证券公司及基金管理公司子公司资产证券化业务管理规定

第一章 总 则第一条 为了规范证券公司、基金管理公司子公司等相关主体开展资产证券化

业务，保障投资者的合法权益，根据《证券法》、《证券投资基金法》、《私募投资基金监督管理暂行办法》和其他相关法律法规，制定本规定。第二条 本规定所称资产证券化业务，是指以基础资产所产生的现金流为偿

付支持，通过结构化等方式进行信用增级，在此基础上发行资产支持证券的业务活动。开展资产证券化业务的证券公司须具备客户资产管理业务资格，基金管理公司子公司须由证券投资基金管理公司设立且具备特定客户资产管理业务资格。第三条 本规定所称基础资产，是指符合法律法规规定，权属明确，可以产

生独立、可预测的现金流且可特定化的财产权利或者财产。基础资产可以是单项财产权利或者财产，也可以是多项财产权利或者财产构成的资产组合。前款规定

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的财产权利或者财产，其交易基础应当真实，交易对价应当公允，现金流应当持续、稳定。基础资产可以是企业应收款、租赁债权、信贷资产、信托受益权等财产权利，基础设施、商业物业等不动产财产或不动产收益权，以及中国证监会认可的其他财产或财产权利。第四条 证券公司、基金管理公司子公司通过设立特殊目的载体开展资产证券

化业务适用本规定。前款所称特殊目的载体，是指证券公司、基金管理公司子公司为开展资产证券化业务专门设立的资产支持专项计划（以下简称专项计划）或者中国证监会认可的其他特殊目的载体。第五条 因专项计划资产的管理、运用、处分或者其他情形而取得的财产，归

入专项计划资产。因处理专项计划事务所支出的费用、对第三人所负债务，以专项计划资产承担。专项计划资产独立于原始权益人、管理人、托管人及其他业务参与人的固有财产。原始权益人、管理人、托管人及其他业务参与人因依法解散、被依法撤销或者宣告破产等原因进行清算的，专项计划资产不属于其清算财产。第六条 原始权益人是指按照本规定及约定向专项计划转移其合法拥有的基

础资产以获得资金的主体。管理人是指为资产支持证券持有人之利益，对专项计划进行管理及履行其他法定及约定职责的证券公司、基金管理公司子公司。托管人是指为资产支持证券持有人之利益，按照规定或约定对专项计划相关资产进行保管，并监督专项计划运作的商业银行或其他机构。第七条 管理人管理、运用和处分专项计划资产所产生的债权，不得与原始权

益人、管理人、托管人、资产支持证券投资者及其他业务参与人的固有财产产生

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的债务相抵销。管理人管理、运用和处分不同专项计划资产所产生的债权债务，不得相互抵销。第八条 专项计划资产应当由具有相关业务资格的商业银行、中国证券登记结

算有限责任公司、具有托管业务资格的证券公司或者中国证监会认可的其他资产托管机构托管。[3] [2] 

第二章 原始权益人、管理人及托管人职责第九条 原始权益人不得侵占、损害专项计划资产，并应当履行下列职责：（一）依照法律、行政法规、公司章程和相关协议的规定或者约定移交基础

资产；（二）配合并支持管理人、托管人以及其他为资产证券化业务提供服务的机

构履行职责；（三）专项计划法律文件约定的其他职责。第十条 原始权益人向管理人等有关业务参与人所提交的文件应当真实、准确

完整，不存在虚假记载、误导性陈述或者重大遗漏；原始权益人应当确保基础资产真实、合法、有效，不存在虚假或欺诈性转移等任何影响专项计划设立的情形第十一条 业务经营可能对专项计划以及资产支持证券投资者的利益产生重

大影响的原始权人（以下简称特定原始权益人）还应当符合下列条件：

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（一）生产经营符合法律、行政法规、特定原始权益人公司章程或者企业、事业单位内部规章文件的规定；（二）内部控制制度健全；（三）具有持续经营能力，无重大经营风险、财务风险和法律风险；（四）最近三年未发生重大违约、虚假信息披露或者其他重大违法违规行为（五）法律、行政法规和中国证监会规定的其他条件。上述特定原始权益人

在专项计划存续期间，应当维持正常的生产经营活动或者提供合理的支持，为基础资产产生预期现金流提供必要的保障。发生重大事项可能损害资产支持证券投资者利益的，应当及时书面告知管理人。第十二条 管理人设立专项计划、发行资产支持证券，除应当具备本规定第二

条第二款的相关资格外，还应当符合以下条件：（一）具有完善的合规、风控制度以及风险处置应对措施，能有效控制业务

风险；（二）最近 1年未因重大违法违规行为受到行政处罚。第十三条 管理人应当履行下列职责：（一）按照本规定及所附《证券公司及基金管理公司子公司资产证券化业务

尽职调查工作指引》（以下简称《尽职调查指引》）对相关交易主体和基础资产

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进行全面的尽职调查，可聘请具有从事证券期货相关业务资格的会计师事务所、资产评估机构等相关出具专业意见；（二）在专项计划存续期间，督促原始权益人以及为专项计划提供服务的

有关机构，履行法律规定及合同约定的义务；（三）办理资产支持证券发行事宜；（四）按照约定及时将募集资金支付给原始权益人；（五）为资产支持证券投资者的利益管理专项计划资产；（六）建立相对封闭、独立的基础资产现金流归集机制，切实防范专项计划

资产与其他资产混同以及被侵占、挪用等风险；（七）监督、检查特定原始权益人持续经营情况和基础资产现金流状况，出

现重大异常情况的，管理人应当采取必要措施，维护专项计划资产安全；（八）按照约定向资产支持证券投资者分配收益；（九）履行信息披露义务；（十）负责专项计划的终止清算；（十一）法律、行政法规和中国证监会规定以及计划说明书约定的其他职责第十四条 管理人不得有下列行为：（一）募集资金不入账或者进行其他任何形式的账外经营；

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（二）超过计划说明书约定的规模募集资金；（三）侵占、挪用专项计划资产；（四）以专项计划资产设定担保或者形成其他或有负债；（五）违反计划说明书的约定管理、运用专项计划资产；（六）法律、行政法规和中国证监会禁止的其他行为。第十五条 管理人应当为专项计划单独记账、独立核算，不同的专项计划在账

户设置、资金划拨、账簿记录等方面应当相互独立。第十六条 管理人应当针对专项计划存续期内可能出现的重大风险，制订切

实可行的风险控制措施和风险处置预案。在风险发生时，管理人应当勤勉尽责地执行风险处置预案，最大程度地保护资产支持证券投资者利益。第十七条 有下列情形之一的，管理人应当在计划说明书中充分披露有关事

项，并对可能存在的风险以及采取的风险防范措施予以说明：（一）管理人持有原始权益人 5%以上的股份或出资份额；（二）原始权益人持有管理人 5%以上的股份或出资份额；（三）管理人与原始权益人之间近三年存在承销保荐、财务顾问等业务关系（四）管理人与原始权益人之间存在其他重大利益关系。

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第十八条 管理人与原始权益人存在第十七条所列情形，或者管理人以自有资金或者其管理的资产管理计划、其他客户资产、证券投资基金认购资产支持证券的，应当采取有效措施，防范可能产生的利益冲突。管理人以自有资金或其管理的资产管理计划、其他客户资产、证券投资基金认购资产支持证券的比例上限由其按照有关规定和合同约定确定。第十九条 专项计划终止的，管理人应当按照计划说明书的约定成立清算组，

负责专项计划资产的保管、清理、估价、变现和分配。管理人应当自专项计划清算完毕之日起 10 个工作日内，向托管人、资产支持证券投资者出具清算报告，并将清算结果向中国证券投资基金业协会（以下简称中国基金业协会）报告，同时抄送对管理人有辖区监管权的中国证监会派出机构。管理人应当聘请具有证券期货相关业务资格的会计师事务所对清算报告出具审计意见。第二十条 专项计划变更管理人，应当充分说明理由，并向中国基金业协会

报告，同时抄送变更前后对管理人有辖区监管权的中国证监会派出机构。管理人出现被取消资产管理业务资格、解散、被撤销或宣告破产以及其他不能继续履行职责情形的，在依据计划说明书或者其他相关法律文件的约定选任符合本规定要求的新的管理人之前，由中国基金业协会指定临时管理人。计划说明书应当对此作出明确提示。第二十一条 管理人职责终止的，应当及时办理档案和职责移交手续。管理人

完成移交手续前，应当妥善保管专项计划文件和资料，维护资产支持证券投资

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者的合法权益。管理人应当自完成移交手续之日起 5 个工作日内，向中国基金业协会报告，同时抄送对移交双方有辖区监管权的中国证监会派出机构。第二十二条 托管人办理专项计划的托管业务，应当履行下列职责：（一）安全保管专项计划相关资产；（二）监督管理人专项计划的运作，发现管理人的管理指令违反计划说明

书或者托管协议约定的，应当要求改正；未能改正的，应当拒绝执行并及时向中国基金业协会报告，同时抄送对管理人有辖区监管权的中国证监会派出机构；（三）出具资产托管报告；（四）计划说明书以及相关法律文件约定的其他事项。[3] [2] 

第三章 专项计划的设立及备案第二十三条 法律法规规定基础资产转让应当办理批准、登记手续的，应当依

法办理。法律法规没有要求办理登记或者暂时不具备办理登记条件的，管理人应当采取有效措施，维护基础资产安全。基础资产为债权的，应当按照有关法律规定将债权转让事项通知债务人。第二十四条 基础资产不得附带抵押、质押等担保负担或者其他权利限制，但

通过专项计划相关安排，在原始权益人向专项计划转移基础资产时能够解除相关担保负担和其他权利限制的除外。

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第二十五条 以基础资产产生现金流循环购买新的同类基础资产方式组成专项计划资产的，专项计划的法律文件应当明确说明基础资产的购买条件、购买规模、流动性风险以及风险控制措施。第二十六条 基础资产的规模、存续期限应当与资产支持证券的规模、存续期

限相匹配。第二十七条 专项计划的货币收支活动均应当通过专项计划账户进行。第二十八条 资产支持证券是投资者享有专项计划权益的证明，可以依法继

承、交易、转让或出质。资产支持证券投资者不得主张分割专项计划资产，不得要求专项计划回购资产支持证券。资产支持证券投资者享有下列权利：（一）分享专项计划收益；（二）按照认购协议及计划说明书的约定参与分配清算后的专项计划剩余

资产；（三）按规定或约定的时间和方式获得资产管理报告等专项计划信息披露

文件，查阅或者复制专项计划相关信息资料；（四）依法以交易、转让或质押等方式处置资产支持证券；（五）根据证券交易场所相关规则，通过回购进行融资；（六）认购协议或者计划说明书约定的其他权利。

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第二十九条 资产支持证券应当面向合格投资者发行，发行对象不得超过二百人，单笔认购不少于 100 万元人民币发行面值或等值份额。合格投资者应当符合《私募投资基金监督管理暂行办法》规定的条件，依法设立并受国务院金融监督管理机构监管，并由相关金融机构实施主动管理的投资计划不再穿透核查最终投资者是否为合格投资者和合并计算投资者人数。第三十条 发行资产支持证券，应当在计划说明书中约定资产支持证券持有

人会议的召集程序及持有人会议规则，明确资产支持证券持有人通过持有人会议行使权利的范围、程序和其他重要事项。第三十一条 专项计划可以通过内部或者外部信用增级方式提升资产支持证

券信用等级。同一专项计划发行的资产支持证券可以划分为不同种类。同一种类的资产支持证券，享有同等权益，承担同等风险。第三十二条 对资产支持证券进行评级的，应当由取得中国证监会核准的证

券市场资信评级业务资格的资信评级机构进行初始评级和跟踪评级。第三十三条 专项计划的管理人以及资产支持证券的销售机构应当采取下列

措施，保障投资者的投资决定是在充分知悉资产支持证券风险收益特点的情形下作出的审慎决定：（一）了解投资者的财产与收入状况、风险承受能力和投资偏好等，推荐与

其风险承受能力相匹配的资产支持证券；

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（二）向投资者充分披露专项计划的基础资产情况、现金流预测情况以及对专项计划的影响、交易合同主要内容及资产支持证券的风险收益特点，告知投资资产支持证券的权利义务；（三）制作风险揭示书充分揭示投资风险，在接受投资者认购资金前应当

确保投资者已经知悉风险揭示书内容并在风险揭示书上签字。第三十四条 专项计划应当指定资产支持证券募集资金专用账户，用于资产

支持证券认购资金的接收与划转。第三十五条 资产支持证券按照计划说明书约定的条件发行完毕，专项计划

设立完成。发行期结束时，资产支持证券发行规模未达到计划说明书约定的最低发行规模，或者专项计划未满足计划说明书约定的其他设立条件，专项计划设立失败。管理人应当自发行期结束之日起 10 个工作日内，向投资者退还认购资金，并加算银行同期活期存款利息。第三十六条 管理人应当自专项计划成立日起 5 个工作日内将设立情况报中

国基金业协会备案，同时抄送对管理人有辖区监管权的中国证监会派出机构。中国基金业协会应当制定备案规则，对备案实施自律管理。未按规定进行备案的，本规定第三十八条所列证券交易场所不得为其提供转让服务。第三十七条 中国基金业协会根据基础资产风险状况对可证券化的基础资产

范围实施负面清单管理，并可以根据市场变化情况和实践情况，适时调整负面清单。[3] [2] 

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第四章 资产支持证券的挂牌、转让第三十八条 资产支持证券可以按照规定在证券交易所、全国中小企业股份转

让系统、机构间私募产品报价与服务系统、证券公司柜台市场以及中国证监会认可的其他证券交易场所进行挂牌、转让。资产支持证券仅限于在合格投资者范围内转让。转让后，持有资产支持证券的合格投资者合计不得超过二百人。资产支持证券初始挂牌交易单位所对应的发行面值或等值份额应不少于 100 万元人民币。第三十九条 资产支持证券申请在证券交易场所挂牌转让的，还应当符合证

券交易所或其他证券交易场所规定的条件。证券交易所、全国中小企业股份转让系统应当制定挂牌、转让规则，对资产支持证券的挂牌、转让进行自律管理。中国证券业协会应当制定挂牌、转让规则，对资产支持证券在机构间私募产品报价与服务系统、证券公司柜台市场的挂牌、转让进行自律管理。证券交易所、全国中小企业股份转让系统、中国证券业协会可以根据市场情况对投资者适当性管理制定更为严格的标准。第四十条 证券公司等机构可以为资产支持证券转让提供双边报价服务。

[3] [2] 

第五章 资产支持证券信息披露第四十一条 管理人及其他信息披露义务人应当按照本规定及所附《证券公司

及基金管理公司子公司资产证券化业务信息披露指引》（以下简称《信息披露指引》）履行信息披露和报送义务。证券交易所、全国中小企业股份转让系统、中国

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证券业协会、中国基金业协会可以根据本规定及《信息披露指引》制定信息披露规则。第四十二条 管理人及其他信息披露义务人应当及时、公平地履行披露义务，

所披露或者报送的信息必须真实、准确、完整，不得有虚假记载、误导性陈述或者重大遗漏。第四十三条 管理人、托管人应当在每年 4 月 30 日之前向资产支持证券合格

投资者披露上年度资产管理报告、年度托管报告。每次收益分配前，管理人应当及时向资产支持证券合格投资者披露专项计划收益分配报告。年度资产管理报告年度托管报告应当由管理人向中国基金业协会报告，同时抄送对管理人有辖区监管权的中国证监会派出机构。第四十四条 发生可能对资产支持证券投资价值或价格有实质性影响的重大

事件，管理人应当及时将有关该重大事件的情况向资产支持证券合格投资者披露，说明事件的起因、目前的状态和可能产生的法律后果，并向证券交易场所、中国基金业协会报告，同时抄送对管理人有辖区监管权的中国证监会派出机构。第四十五条 管理人及其他信息披露义务人应当按照相关规定在证券交易场

所或中国基金业协会指定的网站向合格投资者披露信息。[3] [2] 

第六章 监督管理第四十六条 中国证监会及其派出机构依法对资产证券化业务实行监督管理，

并根据监管需要对资产证券化业务开展情况进行检查。对于违反本规定的，中国

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证监会及其派出机构可采取责令改正、监管谈话、出具警示函、责令公开说明、责令参加培训、责令定期报告、认定为不适当人选等监管措施；依法应予行政处罚的，依照《证券法》、《证券投资基金法》等法律法规和中国证监会的有关规定进行处罚；涉嫌犯罪的，依法移送司法机关，追究其刑事责任。第四十七条 中国证券业协会、中国基金业协会等证券自律组织应当根据本规

定及所附指引对证券公司、基金管理公司子公司开展资产证券化业务过程中的尽职调查、风险控制等环节实施自律管理。[3] [2] 

第七章 附 则第四十八条 资产支持证券的登记结算业务应当由中国证券登记结算有限责

任公司或中国证监会认可的其他机构办理。第四十九条 证券公司、基金管理公司子公司通过其他特殊目的载体开展的资

产证券化业务，参照本规定执行。中国证监会另有规定的，从其规定。第五十条 经中国证监会认可，期货公司、证券金融公司、中国证监会负责监

管的其他公司以及商业银行、保险公司、信托公司等金融机构，可参照适用本规定开展资产证券化业务。第五十一条 本规定及所附《信息披露指引》、《尽职调查指引》自公布之日起

施行。《证券公司资产证券化业务管理规定》（证监会公告 2013〔16〕号）同时废止。

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五、理财（一）：证券投资基金（一）投资公司和投资顾问

为深化股权投资试点工作，上海市金融办、市商务委和市工商局公布了《关于本市开展外商投资股权投资企业试点工作的实施办法》（沪金融办通[2010]38号，以下简称《实施办法》），有关试点工作将正式开展。

　　第一章 总 则　　第一条 为贯彻落实国务院《关于推进上海加快发展现代服务业和先进制造业建设国际金融中心和国际航运中心的意见》，促进本市股权投资行业发展，规范外商投资股权投资企业的设立和运作，根据《中华人民共和国公司法》、《中华人民共和国合伙企业法》及外商投资相关法律法规的有关规定按照《关于本市开展外商投资股权投资企业试点工作的若干意见》要求，制定本实施办法。　　第二条 本办法所称的外商投资股权投资企业，是指在本市依法由外国企业或个人参与投资设立的，以对非上市企业进行股权投资为主要经营业务，并符合本办法第三章有关要求的企业。　　本办法所称的外商投资股权投资管理企业，是指在本市依法由外国企业或个人参与投资设立的，以发起设立股权投资企业，和/或受托进行股权投资管理为主要经营业务，并符合本办法第二章有关要求的企业。

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　　第三条 外商投资股权投资企业可以采用合伙制等组织形式，外商投资股权投资管理企业可以采用公司制、合伙制等组织形式。　　第四条 市人民政府成立外商投资股权投资企业试点工作联席会议（以下简称联席会议），由市人民政府分管领导召集，成员单位包括市金融办、市商务委、市工商局、市发展改革委、市经济信息化委、市科委、市财政局、市地税局、市住房保障房屋管理局、市政府法制办、外汇局上海市分局、上海银监局、上海证监局和浦东新区人民政府等。　　联席会议在国家有关部门的指导下，负责组织有关部门制定和落实各项政策措施，推进本市外商投资股权投资企业相关试点工作，协调解决试点过程中的有关问题。联席会议办公室设在市金融办。　　市金融办承担联席会议的日常工作；市商务委负责公司制外商投资股权投资管理企业设立审批及外商投资股权投资企业在沪投资审批工作；市工商局负责外商投资股权投资企业和外商投资股权投资管理企业注册登记工作；外汇局上海市分局负责本办法所涉外汇管理事宜；联席会议其他成员单位根据各自职责负责推进本市外商投资股权投资企业相关试点工作。　　第五条 市金融办为本市外商投资股权投资企业和外商投资股权投资管理企业的业务主管部门，主要职责如下：　　（一）负责出具外商投资股权投资企业和外商投资股权投资管理企业设立的审查意见；　　（二）负责受理外商投资股权投资企业试点申请并组织审定；　　（三）负责组织获准试点外商投资股权投资企业和外商投资股权投资管理企业的备案管理；

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　　（四）负责组织制定与外商投资股权投资企业相关的扶持政策，督促各区（县）政府落实配套措施。　　第六条 外商投资股权投资企业应遵守中国有关法律法规，境内投资应符合外商投资产业政策。　　本市鼓励设立具有先进技术和管理经验的外商投资股权投资企业和外商投资股权投资管理企业。

　　第二章 外商投资股权投资管理企业　　第七条 外商投资股权投资管理企业可从事如下业务：　　（一）发起设立股权投资企业；　　（二）受托管理股权投资企业的投资业务并提供相关服务；　　（三）股权投资咨询；　　（四）经审批或登记机关许可的其他相关业务。　　第八条 外商投资股权投资管理企业在发起设立股权投资企业过程中，要按照国家有关规定开展资金募集活动，不得违背现行的法律、法规和国家相关政策。　　第九条 以股权投资管理为主要业务的外商投资企业，在名称中要加注“股权投资基金管理”字样的，应具备下列条件：　　（一）外商投资股权投资管理企业应至少拥有一个投资者，该投资者或其关联实体的经营范围应当与股权投资或股权投资管理业务相关。　　本办法所指的关联实体是指该投资者控制的某一实体，或控制该投资者的某一实体，或与该投资者共同受控于某一实体的另一实体。

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　　（二）外商投资股权投资管理企业在申请设立时，应当具有至少两名同时具备下列条件的高级管理人员：　　1、有五年以上从事股权投资或股权投资管理业务的经历；　　2、有二年以上高级管理职务任职经历；　　3、有从事与中国有关的股权投资经历或在中国的金融类机构从业经验；　　4、在最近五年内没有违规记录或尚在处理的经济纠纷诉讼案件，且个人信用记录良好。　　本办法所称高级管理人员，系指担任副总经理及以上职务或相当职务的管理人员。　　（三）外商投资股权投资管理企业注册资本（或认缴出资）应不低于200 万美元，出资方式限于货币形式。注册资本（或认缴出资）应当在营业执照签发之日起三个月内到位 20%以上，余额在二年内全部到位。　　外国投资者用于出资的货币须为可自由兑换的货币或其在中国境内获得的人民币利润或因转股、清算等活动获得的人民币合法收益，中国投资者以人民币出资。　　第十条 设立公司制外商投资股权投资管理企业应向市商务委提出申请，按以下程序办理：　　（一）市商务委自收到全部申请文件之日起 5 个工作日内决定是否受理；在受理后 5 个工作日内，书面征求市金融办意见；　　（二）市金融办自收到市商务委征询函和企业全部申请文件之日起 10

个工作日内书面回复意见；

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　　（三）市商务委在接到市金融办书面意见之日起 8 个工作日内，做出批准或不批准的书面决定。决定予以批准的，颁发《外商投资企业批准证书》；决定不予批准的，书面通知申请人；　　（四）获批的外商投资股权投资管理企业凭《外商投资企业批准证书》等材料在一个月内向市工商局申请办理注册登记手续，并及时至外汇局上海市分局办理外汇登记手续。　　第十一条 设立合伙制外商投资股权投资管理企业应向市工商局提出申请，按以下程序办理：　　（一）市工商局自收到全部申请文件之日起 5 个工作日内，书面征求市金融办意见；　　（二）市金融办自收到市工商局征询函和企业全部申请文件之日起 10

个工作日内书面回复意见；　　（三）市工商局在接到市金融办书面意见之日起 5 个工作日内，做出是否登记的决定。予以登记的，发给营业执照；不予登记的，应当给予书面答复，并说明理由；　　（四）合伙制的外商投资股权投资管理企业须及时凭工商登记注册等材料至外汇局上海市分局办理外汇登记、开户核准等相关外汇管理事宜。　　第十二条 除外商投资股权投资管理企业外，其他外商投资企业不得在名称中使用“股权投资基金管理”字样。

　　第三章 外商投资股权投资企业　　第十三条 外商投资股权投资企业可从事如下业务：

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　　（一）在国家允许的范围内，以全部自有资金进行股权投资，具体投资方式包括新设企业、向已设立企业投资、接受已设立企业投资者股权转让以及国家法律法规允许的其他方式；　　（二）为所投资企业提供管理咨询；　　（三）经登记机关许可的其他相关业务。　　第十四条 以股权投资为主要业务的外商投资企业，名称中要加注“股权投资基金”字样的应具备：认缴出资应不低于 1500 万美元，出资方式限于货币形式；合伙人应当以自己名义出资，除普通合伙人外，其他每个有限合伙人的出资应不低于 100 万美元。　　外国投资者用于出资的货币须为可自由兑换的货币或其在中国境内获得的人民币利润或因转股、清算等活动获得的人民币合法收益，中国投资者以人民币出资。　　第十五条 设立合伙制外商投资股权投资企业按以下程序办理：　　（一）市工商局自收到全部申请文件之日起 5 个工作日内，书面征求市金融办意见；　　（二）市金融办自收到市工商局征询函和企业全部申请文件之日起 10

个工作日内书面回复意见；　　（三）市工商局在接到市金融办书面意见之日起 5 个工作日内，做出是否登记的决定。予以登记的，发给营业执照；不予登记的，应当给予书面答复，并说明理由。　　（四）合伙制的外商投资股权投资企业须及时凭工商登记注册等材料至外汇局上海市分局办理外汇登记、核准开户等相关外汇管理手续。

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　　第十六条 外商投资股权投资企业应当委托境内符合条件的银行作为资金托管人。　　外商投资股权投资企业的托管银行应将相关托管制度报送有关部门备案。　　第十七条 除外商投资股权投资企业外，其他外商投资企业不得在名称中使用“股权投资基金”字样。　　第十八条 外商投资股权投资企业在境内进行股权投资，应当依照国家有关外商投资的法律、行政法规、规章办理。

　　第四章 外商投资股权投资试点企业　　第十九条 本办法所称外商投资股权投资试点企业是经联席会议审定的外商投资股权投资企业和外商投资股权投资管理企业。　　外商投资股权投资试点企业中外商投资股权投资企业的境外投资者应主要由境外主权基金、养老基金、捐赠基金、慈善基金、投资基金的基金（FOF）、保险公司、银行、证券公司以及联席会议认可的其他境外机构投资者组成。　　外商投资股权投资试点企业的出资实行专项资金托管，资金账户及账户内资金使用应由托管银行按规定实施管理。　　第二十条 申请试点的外商投资股权投资企业中的境外投资者，应具备下列条件：　　（一）在其申请前的上一会计年度，具备自有资产规模不低于五亿美元或者管理资产规模不低于十亿美元；

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　　（二）有健全的治理结构和完善的内控制度，近二年未受到司法机关和相关监管机构的处罚；　　（三）境外投资者或其关联实体应当具有五年以上相关投资经历；　　（四）联席会议要求的其它条件。　　第二十一条 申请试点的外商投资股权投资企业和外商投资股权投资管理企业，应通过外商投资股权投资企业或拟设立股权投资企业的执行事务合伙人向市金融办递交试点申请。该合伙人或其关联实体需具备三年以上直接或间接投资于中国境内企业的良好投资经历。申请人需递交如下申请材料　　（一）试点申请书。所附材料包括：第二十条要求的书面证明材料、机构投资者应提交营业执照复印件、最近一年经审计的财务报表等材料；　　（二）股权投资企业资料。包括：募集说明书、合伙协议（主要包括境外投资者的出资比例、募集金额和募集进度等）、主要高管人员简历等；　　（三）托管银行的有关资料及与托管银行签署的相关文件；　　（四）申请人出具的上述全部材料真实性的承诺函；　　（五）联席会议要求的其他材料。　　第二十二条 市金融办自收到全部申请文件之日起 5 个工作日内决定是否受理；在受理后 10 个工作日内，召集联席会议相关单位进行评审，审定试点企业。经评审符合试点要求的，由市金融办书面通知申请人，并抄送联席会议有关单位和试点企业的托管银行；评审不通过的，由市金融办书面通知申请人。

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　　第二十三条 获准试点的外商投资股权投资企业须在通过审核之日起六个月内，根据本办法第三章要求完成工商登记注册手续，过期须重新申请试点资格。　　第二十四条 获准试点的外商投资股权投资管理企业可使用外汇资金对其发起设立的股权投资企业出资，金额不超过所募集资金总额度的 5%，该部分出资不影响所投资股权投资企业的原有属性。　　第二十五条 外商投资股权投资试点企业可至托管银行办理外汇资金境内股权投资事宜。　　本办法发布前已经开立资本金帐户的外商投资股权投资管理企业，经联席会议办公室批准后至开户行办理外汇资金境内股权投资事宜。

　　第五章 监督管理　　第二十六条 联席会议负责组织本市外商投资股权投资企业相关试点工作，各联席会议成员单位根据联席会议安排做好相应的管理工作。　　试点企业所在区（县）政府应明确具体职能部门，配合市金融办负责对本区（县）范围内注册的外商投资股权投资试点企业实施备案管理，定期了解外商投资股权投资试点企业融资、投资、财务等信息，并向联席会议报告情况。　　第二十七条 市金融办对外商投资股权投资试点企业实行备案管理。外商投资股权投资试点企业在工商登记后 10 个工作日内向所在区（县）职能部门提交下列材料：　　（一）备案申请书。　　（二）股东协议、公司章程或合伙协议等文件。

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　　（三）工商登记决定文书与营业执照复印件。　　（四）承诺出资额和已缴出资额的证明。　　（五）至少两名高级管理人员名单、简历及相关证明材料。　　（六）投资决策机制以及参与投资决策的主要人员简历及身份证明。　　区（县）职能部门在收到上述材料齐备后 5 个工作日内，报市金融办。　　第二十八条 外商投资股权投资试点企业，应当在每半年向所在区（县）职能部门报告上半年投资运作过程中的重大事件。　　前款所称重大事件，系指：　　（一）外商投资股权投资企业投资；　　（二）外商投资股权投资管理企业投资；　　（三）修改合同、章程或合伙协议等重要法律文件；　　（四）高级管理人员的变更；　　（五）所委托管理的外商投资股权投资管理企业的变更；　　（六）增加或减少注册资本（认缴出资）；　　（七）分立与合并；　　（八）解散、清算或破产；　　（九）市金融办要求的其他事项。　　区（县）职能部门在收到上述材料 5 个工作日内，报市金融办。　　第二十九条 外商投资股权投资试点企业报告境内投资项目，应提供下列材料：　　（一）外商投资股权投资企业投资备案表；　　（二）被投资企业营业执照（复印件加盖被投资企业公章）；

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　　（三）被投资企业所在地外资主管部门的文件。　　第三十条 外商投资股权投资试点企业的托管银行应履行的职责包括但不限于：　　（一）定期向联席会议办公室及联席会议有关单位上报外商投资股权投资试点企业托管资金运作情况、投资项目情况等信息；　　（二）每个会计年度结束后，向联席会议办公室上报外商投资股权投资试点企业各方核对一致的上一年度境内股权投资情况的年度报告；　　（三）监督外商投资股权投资试点企业的投资运作，发现其投向违反国家法律法规或托管协议的，不予执行并立即向联席会议办公室报告；　　（四）联席会议规定的其他监督事项。　　第三十一条 外商投资股权投资企业不得从事下列业务：　　（一）在国家禁止外商投资的领域投资；　　（二）在二级市场进行股票和企业债券交易，但所投资企业上市后，外商投资股权投资企业所持股份不在此列；　　（三）从事期货等金融衍生品交易；　　（四）直接或间接投资于非自用不动产；　　（五）挪用非自有资金进行投资；　　（六）向他人提供贷款或担保；　　（七）法律、法规以及外商投资股权投资企业设立文件禁止从事的其他事项。

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　　第三十二条 市金融办可以通过信函与电话询问、走访或向托管银行征询等方式，了解已备案的外商投资股权投资试点企业情况，并建立社会监督机制。　　已备案的外商投资股权投资试点企业违反本办法规定的，市金融办应会同有关部门查实。情况属实的，市金融办应责令其在 30 个工作日内整改；逾期未改正的，市金融办取消备案并向社会公告，并会同相关部门依法进行查处，按情节轻重依法予以惩处；构成犯罪的，依法追究刑事责任。　　第三十三条 发挥上海股权投资协会、上海国际股权投资基金协会等行业自律组织的作用，加强行业自律，建立合格投资者和优秀管理团队的声誉市场。

　　第六章 附 则　　第三十四条 合伙制外商投资股权投资企业及合伙制外商投资股权投资管理企业办理下列登记事项发生变更时，市工商局应征求市金融办意见：　　（一）变更经营范围；　　（二）变更合伙人；　　（三）增加或减少认缴或实际缴付的出资数额、缴付期限；（四）变更合伙企业类型。　　第三十五条 合伙制外商投资股权投资企业及合伙制外商投资股权投资管理企业办理注销时，市工商局应通报市金融办。　　第三十六条 外商投资企业在本市再投资设立公司制股权投资管理企业或公司制股权投资企业的，应按照《关于外商投资企业境内投资的暂行规定》报市商务委审批。

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　　第三十七条 香港特别行政区、澳门特别行政区、台湾地区的投资者在本市投资设立股权投资企业和股权投资管理企业，参照本办法执行。　　第三十八条 外商投资股权投资企业试点工作在本市有条件的区县逐步开展。　　第三十九条 本办法由市金融办、市商务委和市工商局按照各自职责负责解释。　　第四十条 本办法自颁布之日起 30 日后施行。

（二）受信责任

JJONES v.HARRIS, Supreme Court of the United States(2010), 120 S.Ct 1418, 176 L, Ed,, 2d 265.

Justice Alito delivered the opinion of the Court. We consider in this case what a mutual fund shareholder must prove in order to show that a mutual fund investment 和 breached the “fiduciary duty with respect to the receipt of compensation for services” that is imposed by §36(b) of the Investment Company Act of 1940, 15 U. S. C. §80a–35(b) (hereinafter §36(b)).

IA

The Investment Company Act of 1940 (Act), 54 Stat. 789, 15 U. S. C. §80a–1 et seq., regulates investment companies, including mutual funds. “A mutual fund is a pool of assets, consisting primarily of [a] portfolio [of] securities, and belonging to the individual investors holding shares in the fund.” Burksv. Lasker, 441 U. S. 471, 480 (1979). The following arrangements are typical. A separate entity called an investment adviser creates the mutual fund, which may have no employees of its own. See Kamenv. Kemper Financial Services, Inc., 500 U. S. 90, 93 (1991) ; Daily Income Fund, Inc.v. Fox, 464 U. S. 523, 536 (1984) ; Burks, 441 U. S., at 480–481. The adviser selects the fund’s directors, manages the fund’s

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investments, and provides other services. See id.,at 481. Because of the relationship between a mutual fund and its investment adviser, the fund often “ ‘cannot, as a practical matter sever its relationship with the adviser. Therefore, the forces of arm’s-length bargaining do not work in the mutual fund industry in the same manner as they do in other sectors of the American economy.’ ” Ibid.(quoting S. Rep. No. 91–184, p. 5 (1969) (hereinafter S. Rep.)). “Congress adopted the [Investment Company Act of 1940] because of its concern with the potential for abuse inherent in the structure of investment companies.” Daily Income Fund,464 U. S., at 536 (internal quotation marks omitted). Recognizing that the relationship between a fund and its investment adviser was “fraught with potential conflicts of interest,” the Act created protections for mutual fund shareholders. Id.,at 536–538 (internal quotation marks omitted); Burks, supra,at 482–483. Among other things, the Act required that no more than 60 percent of a fund’s directors could be affiliated with the adviser and that fees for investment advisers be approved by the directors and the shareholders of the fund. See §§10, 15(c), 54 Stat. 806, 813. The growth of mutual funds in the 1950’s and 1960’s prompted studies of the 1940 Act’s effectiveness in protecting investors. See Daily Income Fund, 464 U. S., at 537–538. Studies commissioned or authored by the Securities and Exchange Commission (SEC or Commission) identified problems relating to the independence of investment company boards and the compensation received by investment advisers. See ibid. In response to such concerns, Congress amended the Act in 1970 and bolstered shareholder protection in two primary ways. First, the amendments strengthened the “cornerstone” of the Act’s efforts to check conflicts of interest, the independence of mutual fund boards of directors, which negotiate and scrutinize adviser compensation. Burks, supra,at 482. The amendments required that no more than 60 percent of a fund’s directors be “persons who are interested persons,” e.g.,that they have no interest in or affiliation with the investment adviser. 115 U. S. C. §80a–10(a); §80a–2(a)(19); see also Daily Income Fund, supra, at 538. These board members are given “a host of special responsibilities.” Burks, 441 U. S., at 482–483. In particular, they must “review and approve the contracts of the investment adviser” annually, id.,at 483, and a majority of these directors must approve an adviser’s compensation, 15 U. S. C. §80a–15(c). Second, §36(b), 84 Stat. 1429, of the Act imposed upon investment advisers a “fiduciary duty” with respect to compensation received from a mutual fund, 15 U. S. C. §80a–35(b), and granted individual

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investors a private right of action for breach of that duty, ibid.The “fiduciary duty” standard contained in §36(b) represented a delicate compromise. Prior to the adoption of the 1970 amendments, shareholders challenging investment adviser fees under state law were required to meet “common-law standards of corporate waste, under which an unreasonable or unfair fee might be approved unless the court deemed it ‘unconscionable’ or ‘shocking,’ ” and “security holders challenging adviser fees under the [Investment Company Act] itself had been required to prove gross abuse of trust.” Daily Income Fund , 464 U. S., at 540, n. 12. Aiming to give shareholders a stronger remedy, the SEC proposed a provision that would have empowered the Commission to bring actions to challenge a fee that was not “reasonable” and to intervene in any similar action brought by or on behalf of an investment company. Id.,at 538. This approach was included in a bill that passed the House. H. R. 9510, 90th Cong., 1st Sess., §8(d) (1967); see also S. 1659, 90th Cong., 1st Sess., §8(d) (1967). Industry representatives, however, objected to this proposal, fearing that it “might in essence provide the Commission with ratemaking authority.” Daily Income Fund, 464 U. S., at 538. The provision that was ultimately enacted adopted “a different method of testing management compensation,” id.,at 539 (quoting S. Rep., at 5 (internal quotation marks omitted)), that was more favorable to shareholders than the previously available remedies but that did not permit a compensation agreement to be reviewed in court for “reasonableness.” This is the fiduciary duty standard in §36(b).

B Petitioners are shareholders in three different mutual funds managed by respondent Harris Associates L. P., an investment adviser. Petitioners filed this action in the Northern District of Illinois pursuant to §36(b) seeking damages, an injunction, and rescission of advisory agreements between Harris Associates and the mutual funds. The complaint alleged that Harris Associates had violated §36(b) by charging fees that were “disproportionate to the services rendered” and “not within the range of what would have been negotiated at arm’s length in light of all the surrounding circumstances.” App. 52. The District Court granted summary judgment for Harris Associates. Applying the standard adopted in Gartenbergv. Merrill Lynch Asset Management, Inc., 694 F. 2d 923 (CA2 1982), the court concluded that petitioners had failed to raise a triable issue of fact as to “whether the fees charged … were so disproportionately large that they could not have been the result of arm’s-length

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bargaining.” App. to Pet. for Cert. 29a. The District Court assumed that it was relevant to compare the challenged fees with those that Harris Associates charged its other clients. Id.,at 30a. But in light of those comparisons as well as comparisons with fees charged by other investment advisers to similar mutual funds, the Court held that it could not reasonably be found that the challenged fees were outside the range that could have been the product of arm’s-length bargaining. Id.,at 29a–32a. A panel of the Seventh Circuit affirmed based on different reasoning, explicitly “disapprov[ing] the Gartenbergapproach.” 527 F. 3d 627, 632 (2008). Looking to trust law, the panel noted that, while a trustee “owes an obligation of candor in negotiation,” a trustee, at the time of the creation of a trust, “may negotiate in his own interest and accept what the settlor or governance institution agrees to pay.” Ibid.(citing Restatement (Second) of Trusts §242, and Comment f)). The panel thus reasoned that “[a] fiduciary duty differs from rate regulation. A fiduciary must make full disclosure and play no tricks but is not subject to a cap on compensation.” 527 F. 3d, at 632. In the panel’s view, the amount of an adviser’s compensation would be relevant only if the compensation were “so unusual” as to give rise to an inference “that deceit must have occurred, or that the persons responsible for decision have abdicated.” Ibid. The panel argued that this understanding of §36(b) is consistent with the forces operating in the contemporary mutual fund market. Noting that “[t]oday thousands of mutual funds compete,” the panel concluded that “sophisticated investors” shop for the funds that produce the best overall results, “mov[e] their money elsewhere” when fees are “excessive in relation to the results,” and thus “create a competitive pressure” that generally keeps fees low. Id.,at 633–634. The panel faulted Gartenbergon the ground that it “relies too little on markets.” 527 F. 3d, at 632. And the panel firmly rejected a comparison between the fees that Harris Associates charged to the funds and the fees that Harris Associates charged other types of clients, observing that “[d]ifferent clients call for different commitments of time” and that costs, such as research, that may benefit several categories of clients “make it hard to draw inferences from fee levels.” Id.,at 634. The Seventh Circuit denied rehearing en banc by an equally divided vote. 537 F. 3d 728 (2008). The dissent from the denial of rehearing argued that the panel’s rejection of Gartenbergwas based “mainly on an economic analysis that is ripe for reexamination.” 537 F. 3d, at 730 (opinion of Posner, J.). Among other things, the dissent expressed concern that Harris Associates charged “its

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captive funds more than twice what it charges independent funds,” and the dissent questioned whether high adviser fees actually drive investors away. Id.,at 731. We granted certiorari to resolve a split among the Courts of Appeals over the proper standard under §36(b). 2556 U. S. ___ (2009).

IIA

Since Congress amended the Investment Company Act in 1970, the mutual fund industry has experienced exponential growth. Assets under management increased from $38.2 billion in 1966 to over $9.6 trillion in 2008. The number of mutual fund investors grew from 3.5 million in 1965 to 92 million in 2008, and there are now more than 9,000 open- and closed-end funds. 3

During this time, the standard for an investment adviser’s fiduciary duty has remained an open question in our Court, but, until the Seventh Circuit’s decision below, something of a consensus had developed regarding the standard set forth over 25 years ago in Gartenberg, supra.The Gartenbergstandard has been adopted by other federal courts, 4and “[t]he SEC’s regulations have recognized, and formalized, Gartenberg-like factors.” Brief for United States as Amicus Curiae23. See 17 CFR §240.14a–101, Sched. 14A, Item 22, para. (c)(11)(i) (2009); 69 Fed. Reg. 39801, n. 31, 39807–39809 (2004). In the present case, both petitioners and respondent generally endorse the Gartenbergapproach, although they disagree in some respects about its meaning. In Gartenberg, the Second Circuit noted that Congress had not defined what it meant by a “fiduciary duty” with respect to compensation but concluded that “the test is essentially whether the fee schedule represents a charge within the range of what would have been negotiated at arm’s-length in the light of all of the surrounding circumstances.” 694 F. 2d, at 928. The Second Circuit elaborated that, “[t]o be guilty of a violation of §36(b), … the adviser-manager must charge a fee that is so disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arm’s-length bargaining.” Ibid. “To make this determination,” the Court stated, “all pertinent facts must be weighed,” id.,at 929, and the Court specifically mentioned “the adviser-manager’s cost in providing the service, … the extent to which the adviser-manager realizes economies of scale as the fund grows larger, and the volume of orders which must be processed by the manager.” Id.,at 930. 5Observing that competition among advisers for the business of managing a fund may be “virtually non-existent,” the Court rejected

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the suggestion that “the principal factor to be considered in evaluating a fee’s fairness is the price charged by other similar advisers to funds managed by them,” although the Court did not suggest that this factor could not be “taken into account.” Id.,at 929. The Court likewise rejected the “argument that the lower fees charged by investment advisers to large pension funds should be used as a criterion for determining fair advisory fees for money market funds,” since a “pension fund does not face the myriad of daily purchases and redemptions throughout the nation which must be handled by [a money market fund].” Id.,at 930, n. 3. 6

B The meaning of §36(b)’s reference to “a fiduciary duty with respect to the receipt of compensation for services” 7is hardly pellucid, but based on the terms of that provision and the role that a shareholder action for breach of that duty plays in the overall structure of the Act, we conclude that Gartenbergwas correct in its basic formulation of what §36(b) requires: to face liability under §36(b), an investment adviser must charge a fee that is so disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arm’s length bargaining.

1 We begin with the language of §36(b). As noted, the Seventh Circuit panel thought that the phrase “fiduciary duty” incorporates a standard taken from the law of trusts. Petitioners agree but maintain that the panel identified the wrong trust-law standard. Instead of the standard that applies when a trustee and a settlor negotiate the trustee’s fee at the time of the creation of a trust, petitioners invoke the standard that applies when a trustee seeks compensation after the trust is created. Brief for Petitioners 20–23, 35–37. A compensation agreement reached at that time, they point out, “ ‘will not bind the beneficiary’ if either ‘the trustee failed to make a full disclosure of all circumstances affecting the agreement’ ” which he knew or should have known or if the agreement is unfair to the beneficiary. Id.,at 23 (quoting Restatement (Second) of Trusts §242, Comment i). Respondent, on the other hand, contends that the term “fiduciary” is not exclusive to the law of trusts, that the phrase means different things in different contexts, and that there is no reason to believe that §36(b) incorporates the specific meaning of the term in the law of trusts. Brief for Respondent 34–36. We find it unnecessary to take sides in this dispute. In Pepperv. Litton, 308 U. S. 295 (1939), we discussed the meaning of the concept of fiduciary duty in a context that is analogous to that presented here, and we also looked to trust law. At issue in

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Pepperwas whether a bankruptcy court could disallow a dominant or controlling shareholder’s claim for compensation against a bankrupt corporation. Dominant or controlling shareholders, we held, are “fiduciar[ies]” whose “powers are powers [held] in trust.” Id.,at 306. We then explained:“Their dealings with the corporation are subjected to rigorous scrutiny and where any of their contracts or engagements with the corporation is challenged the burden is on the director or stockholder not only to prove the good faith of the transaction but also to show its inherent fairness from the viewpoint of the corporation and those interested therein… . The essence of the test is whether or not under all the circumstances the transaction carries the earmarks of an arm’s length bargain.If it does not, equity will set it aside.” Id.,at 306–307 (emphasis added; footnote omitted); see also Geddesv. Anaconda Copper Mining Co., 254 U. S. 590, 599 (1921) (standard of fiduciary duty for interested directors).We believe that this formulation expresses the meaning of the phrase “fiduciary duty” in §36(b), 84 Stat. 1429. The Investment Company Act modifies this duty in a significant way: it shifts the burden of proof from the fiduciary to the party claiming breach, 15 U. S. C. §80a–35(b)(1), to show that the fee is outside the range that arm’s-length bargaining would produce. The Gartenbergapproach fully incorporates this understanding of the fiduciary duty as set out in Pepperand reflects §36(b)(1)’s imposition of the burden on the plaintiff. As noted, Gartenberginsists that all relevant circumstances be taken into account, see 694 F. 2d, at 929, as does §36(b)(2), 84 Stat. 1429 (“[A]pproval by the board of directors … shall be given such consideration by the court as is deemed appropriate under all the circumstances ” (emphasis added)). And Gartenberguses the range of fees that might result from arm’s-length bargaining as the benchmark for reviewing challenged fees.

2 Gartenberg’s approach also reflects §36(b)’s place in the statutory scheme and, in particular, its relationship to the other protections that the Act affords investors. Under the Act, scrutiny of investment adviser compensation by a fully informed mutual fund board is the “cornerstone of the … effort to control conflicts of interest within mutual funds.” Burks, 441 U. S., at 482. The Act interposes disinterested directors as “independent watchdogs” of the relationship between a mutual fund and its adviser. Id.,at 484 (internal quotation marks omitted). To provide these directors with the information needed to judge whether an adviser’s compensation is excessive, the Act requires advisers to

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furnish all information “reasonably … necessary to evaluate the terms” of the adviser’s contract, 15 U. S. C. §80a–15(c), and gives the SEC the authority to enforce that requirement. See §80a–41. Board scrutiny of adviser compensation and shareholder suits under §36(b), 84 Stat. 1429, are mutually reinforcing but independent mechanisms for controlling conflicts. See Daily Income Fund, 464 U. S., at 541 (Congress intended for §36(b) suits and directorial approval of adviser contracts to act as “independent checks on excessive fees”); Kamen, 500 U. S., at 108 (“Congress added §36(b) to the [Act] in 1970 because it concluded that the shareholders should not have to rely solely on the fund’s directors to assure reasonable adviser fees, notwithstanding the increased disinterestedness of the board” (internal quotation marks omitted)). In recognition of the role of the disinterested directors, the Act instructs courts to give board approval of an adviser’s compensation “such consideration … as is deemed appropriate under all the circumstances.” §80a–35(b)(2). Cf. Burks,441 U. S., at 485 (“[I]t would have been paradoxical for Congress to have been willing to rely largely upon [boards of directors as] ‘watchdogs’ to protect shareholder interests and yet, where the ‘watchdogs’ have done precisely that, require that they be totally muzzled”). From this formulation, two inferences may be drawn. First, a measure of deference to a board’s judgment may be appropriate in some instances. Second, the appropriate measure of deference varies depending on the circumstances. Gartenbergheeds these precepts. Gartenbergadvises that “the expertise of the independent trustees of a fund, whether they are fully informed about all facts bearing on the [investment adviser’s] service and fee, and the extent of care and conscientiousness with which they perform their duties are important factors to be considered in deciding whether they and the [investment adviser] are guilty of a breach of fiduciary duty in violation of §36(b).” 694 F. 2d, at 930.

III While both parties in this case endorse the basic Gartenbergapproach, they disagree on several important questions that warrant discussion. The first concerns comparisons between the fees that an adviser charges a captive mutual fund and the fees that it charges its independent clients. As noted, the Gartenbergcourt rejected a comparison between the fees that the adviser in that case charged a money market fund and the fees that it charged a pension fund. 694 F. 2d, at 930, n. 3 (noting the “[t]he nature and extent of the services required by each type of fund differ sharply”). Petitioners

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contend that such a comparison is appropriate, Brief for Petitioners 30–31, but respondent disagrees. Brief for Respondent 38–44. Since the Act requires consideration of all relevant factors, 15 U. S. C. §80a–35(b)(2); see also §80a–15(c), we do not think that there can be any categorical rule regarding the comparisons of the fees charged different types of clients. See Daily Income Fund, supra, at 537 (discussing concern with investment advisers’ practice of charging higher fees to mutual funds than to their other clients). Instead, courts may give such comparisons the weight that they merit in light of the similarities and differences between the services that the clients in question require, but courts must be wary of inapt comparisons. As the panel below noted, there may be significant differences between the services provided by an investment adviser to a mutual fund and those it provides to a pension fund which are attributable to the greater frequency of shareholder redemptions in a mutual fund, the higher turnover of mutual fund assets, the more burdensome regulatory and legal obligations, and higher marketing costs. 527 F. 3d, at 634 (“Different clients call for different commitments of time”). If the services rendered are sufficiently different that a comparison is not probative, then courts must reject such a comparison. Even if the services provided and fees charged to an independent fund are relevant, courts should be mindful that the Act does not necessarily ensure fee parity between mutual funds and institutional clients contrary to petitioners’ contentions. See id.,at 631. (“Plaintiffs maintain that a fiduciary may charge its controlled clients no more than its independent clients”). 8

By the same token, courts should not rely too heavily on comparisons with fees charged to mutual funds by other advisers. These comparisons are problematic because these fees, like those challenged, may not be the product of negotiations conducted at arm’s length. See 537 F. 3d, at 731–732 (opinion dissenting from denial of rehearing en banc); Gartenberg, supra, at 929 (“Competition between money market funds for shareholder business does not support an inference that competition must therefore also exist between [investment advisers] for fund business. The former may be vigorous even though the latter is virtually non-existent”). Finally, a court’s evaluation of an investment adviser’s fiduciary duty must take into account both procedure and substance. See 15 U. S. C. §80a–35(b)(2) (requiring deference to board’s consideration “as is deemed appropriate under all the circumstances”); cf. Daily Income Fund, 464 U. S., at 541 (“Congress intended security holder and SEC actions under §36(b), on the one hand, and directorial approval of adviser contracts, on the other, to act as independent

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checks on excessive fees”). Where a board’s process for negotiating and reviewing investment-adviser compensation is robust, a reviewing court should afford commensurate deference to the outcome of the bargaining process. See Burks,441 U. S., at 484 (unaffiliated directors serve as “independent watchdogs”). Thus, if the disinterested directors considered the relevant factors, their decision to approve a particular fee agreement is entitled to considerable weight, even if a court might weigh the factors differently. Cf . id.,at 485. This is not to deny that a fee may be excessive even if it was negotiated by a board in possession of all relevant information, but such a determination must be based on evidence that the fee “is so disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arm’s-length bargaining.” Gartenberg, supra, at 928. In contrast, where the board’s process was deficient or the adviser withheld important information, the court must take a more rigorous look at the outcome. When an investment adviser fails to disclose material information to the board, greater scrutiny is justified because the withheld information might have hampered the board’s ability to function as “an independent check upon the management.” Burks, supra, at 484 (internal quotation marks omitted). “Section 36(b) is sharply focused on the question of whether the fees themselves were excessive.” Migdalv. Rowe Price-Fleming Int’l, Inc.,248 F. 3d 321, 328 (CA4 2001); see also 15 U. S. C. §80a–35(b) (imposing a “fiduciary duty with respect to the receipt of compensationfor services ,or of payments of a material natur e” (emphasis added)). But an adviser’s compliance or noncompliance with its disclosure obligations is a factor that must be considered in calibrating the degree of deference that is due a board’s decision to approve an adviser’s fees. It is also important to note that the standard for fiduciary breach under §36(b) does not call for judicial second-guessing of informed board decisions. See Daily Income Fund, supra, at 538; see also Burks, 441 U. S., at 483 (“Congress consciously chose to address the conflict-of-interest problem through the Act’s independent-directors section, rather than through more drastic remedies”). “[P]otential conflicts [of interests] may justify some restraints upon the unfettered discretion of even disinterested mutual fund directors, particularly in their transactions with the investment adviser,” but they do not suggest that a court may supplant the judgment of disinterested directors apprised of all relevant information, without additional evidence that the fee exceeds the arm’s-length range. Id., at 481. In reviewing compensation under

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§36(b), the Act does not require courts to engage in a precise calculation of fees representative of arm’s-length bargaining. See 527 F. 3d, at 633 (“Judicial price-setting does not accompany fiduciary duties”). As recounted above, Congress rejected a “reasonableness” requirement that was criticized as charging the courts with rate-setting responsibilities. See Daily Income Fund, supra, at 538–540. Congress’ approach recognizes that courts are not well suited to make such precise calculations. Cf. General Motors Corp.v. Tracy, 519 U. S. 278, 308 (1997) (“[T]he Court is institutionally unsuited to gather the facts upon which economic predictions can be made, and professionally untrained to make them”); Verizon Communications Inc.v. FCC, 535 U. S. 467, 539 (2002); see also Concordv. Boston Edison Co., 915 F. 2d 17, 25 (CA1 1990) (opinion for the court by Breyer, C. J.) (“[H]ow is a judge or jury to determine a ‘fair price’?”). Gartenberg’s “so disproportionately large” standard, 694 F. 2d, at 928, reflects this congressional choice to “rely largely upon [independent director] ‘watchdogs’ to protect shareholders interests.” Burks, supra,at 485. By focusing almost entirely on the element of disclosure, the Seventh Circuit panel erred. See 527 F. 3d, at 632 (An investment adviser “must make full disclosure and play no tricks but is not subject to a cap on compensation”). The Gartenbergstandard, which the panel rejected, may lack sharp analytical clarity, but we believe that it accurately reflects the compromise that is embodied in §36(b), and it has provided a workable standard for nearly three decades. The debate between the Seventh Circuit panel and the dissent from the denial of rehearing regarding today’s mutual fund market is a matter for Congress, not the courts.

IV For the foregoing reasons, the judgment of the Court of Appeals is vacated, and the case remanded for further proceedings consistent with this opinion.It is so ordered.

Notes1 An “affiliated person” includes (1) a person who owns, controls, or holds the power to vote 5 percent or more of the securities of the investment adviser; (2) an entity which the investment adviser owns, controls, or in which it holds the power to vote more than 5 percent of the securities; (3) any person directly or indirectly controlling, controlled by, or under common control with the investment adviser; (4) an officer, director, partner, copartner, or

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employee of the investment adviser; (5) an investment adviser or a member of the investment adviser’s board of directors; or (6) the depositor of an unincorporated investment adviser. See §80a–2(a)(3). The Act defines “interested person” to include not only all affiliated persons but also a wider swath of people such as the immediate family of affiliated persons, interested persons of an underwriter or investment adviser, legal counsel for the company, and interested broker-dealers. §80a–2(a)(19).2 See 527 F. 3d 627 (CA7 2008) (case below); Migdal v. Rowe Price-Fleming Int’l, Inc., 248 F. 3d 321 (CA4 2001); Krantz v. Prudential Invs. Fund Management LLC, 305 F. 3d 140 (CA3 2002) (per curiam). After we granted certiorari in this case, another Court of Appeals adopted the standard of Gartenberg v. Merrill Lynch Asset Management, Inc., 694 F. 2d 923 (CA2 1982). See Gallus v. Ameriprise Financial, Inc., 561 F. 3d 816 (CA8 2009).3 Compare H. R. Rep. No. 2337, 89th Cong., 2d Sess., p. vii (1966), with Investment Company Institute, 2009 Fact Book 15, 20, 72 (49th ed.), online at http://www.icifactbook.org/pdf/2009_factbook.pdf (as visited Mar. 9, 2010, and available in Clerk of Court’s case file).4 See, e.g., Gallus, supra, at 822–823; Krantz, supra; In re Franklin Mut. Funds Fee Litigation, 478 F. Supp. 2d 677, 683, 686 (NJ 2007); Yameen v. Eaton Vance Distributors, Inc., 394 F. Supp. 2d 350, 355 (Mass. 2005); Hunt v. Invesco Funds Group, Inc., No. H–04–2555, 2006 WL 1581846, *2 (SD Tex., June 5, 2006); Siemers v. Wells Fargo & Co., No. C 05–4518 WHA, 2006 WL 2355411, *15–*16 (ND Cal., Aug. 14, 2006); see also Amron v. Morgan Stanley Inv. Advisors Inc., 464 F. 3d 338, 340–341 (CA2 2006).5 Other factors cited by the Gartenberg court include (1) the nature and quality of the services provided to the fund and shareholders; (2) the profitability of the fund to the adviser; (3) any “fall-out financial benefits,” those collateral benefits that accrue to the adviser because of its relationship with the mutual fund; (4) comparative fee structure (meaning a comparison of the fees with those paid by similar funds); and (5) the independence, expertise, care, and conscientiousness of the board in evaluating adviser compensation. 694 F. 2d, at 929–932 (internal quotation marks omitted).6 A money market fund differs from a mutual fund in both the types of investments and the frequency of redemptions. A money market fund often invests in short-term money market securities, such as short-term securities of the United States Government or its agencies, bank certificates of deposit, and commercial paper. Investors can invest in such a fund for as little as a day, so, from the investor’s perspective, the fund resembles an investment “more like

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a bank account than [a] traditional investment in securities.” Id., at 925.7 Section 36 (b) provides as follows: “[T]he investment adviser of a registered investment company shall be deemed to have a fiduciary duty with respect to the receipt of compensation for services, or of payments of a material nature, paid by such registered investment company, or by the security holders thereof, to such investment adviser.” 84 Stat. 1429 (codified at 15 U. S. C. §80a–35(b)).8 Comparisons with fees charged to institutional clients, therefore, will not “doo[m] [a]ny [f]und to [t]rial.” Brief for Respondent 49; see also Strougo v. BEA Assocs., 188 F. Supp. 2d 373, 384 (SDNY 2002) (suggesting that fee comparisons, where permitted, might produce a triable issue). First, plaintiffs bear the burden in showing that fees are beyond the range of arm’s-length bargaining. §80a–35(b)(1). Second, a showing of relevance requires courts to assess any disparity in fees in light of the different markets for advisory services. Only where plaintiffs have shown a large disparity in fees that cannot be explained by the different services in addition to other evidence that the fee is outside the arm’s-length range will trial be appropriate. Cf. App. to Pet. for Cert. 30a; see also In re AllianceBernstein Mut. Fund Excessive Fee Litigation, No. 04 Civ. 4885 (SWK), 2006 WL 1520222, *2 (SDNY, May 31, 2006) (citing report finding that fee differential resulted from different services and different liabilities assumed).

Justice Thomas , concurring. The Court rightly affirms the careful approach to §36(b) cases, see 15 U. S. C. §80a–35(b), that courts have applied since (and in certain respects in spite of) Gartenbergv. Merrill Lynch Asset Management, Inc., 694 F. 2d 923, 928–930 (CA2 1982). I write separately because I would not shortchange the Court’s effort by describing it as affirmation of the “ Gartenbergstandard.” Ante, at 7, 17. The District Court and Court of Appeals in Gartenbergcreated that standard, which emphasizes fee “fairness” and proportionality, 694 F. 2d, at 929, in a manner that could be read to permit the equivalent of the judicial rate regulation the Gartenbergopinions disclaim, based on the Investment Company Act of 1940’s “tortuous” legislative history and a handful of extrastatutory policy and market considerations, id., at 928; see also id., at 926–927, 929–931; Gartenbergv. Merrill Lynch Asset Management, Inc., 528 F. Supp. 1038, 1046–1050, 1055–1057 (SDNY 1981). Although virtually all subsequent §36(b) cases cite Gartenberg, most courts have correctly declined its invitation to stray beyond statutory bounds.

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Instead, they have followed an approach (principally in deciding which cases may proceed past summary judgment) that defers to the informed conclusions of disinterested boards and holds plaintiffs to their heavy burden of proof in the manner the Act, and now the Court’s opinion, requires. See, e.g., ante, at 11 (underscoring that the Act “modifies” the governing fiduciary duty standard “in a significant way: It shifts the burden of proof from the fiduciary to the party claiming breach, 15 U. S. C. §80a–35(b)(1), to show that the fee is outside the range that arm’s-length bargaining would produce”); ante, at 16 (citing the “degree of deference that is due a board’s decision to approve an adviser’s fees” and admonishing that “the standard for fiduciary breach under §36(b) does not call for judicial second-guessing of informed board decisions”). I concur in the Court’s decision to affirm this approach based upon the Investment Company Act’s text and our longstanding fiduciary duty precedents. But I would not say that in doing so we endorse the “ Gartenbergstandard.” Whatever else might be said about today’s decision, it does not countenance the free-ranging judicial “fairness” review of fees that Gartenbergcould be read to authorize, see 694 F. 2d, at 929–930, and that virtually all courts deciding §36(b) cases since Gartenberg(including the Court of Appeals in this case) have wisely eschewed in the post Gartenbergprecedents we approve.

（二）费用

545 F2d 807 Galfand v. Chestnutt Corporation

Before KAUFMAN, Chief Judge, and MANSFIELD and MESKILL, Circuit Judges.

IRVING R. KAUFMAN, Chief Judge:

1

The relationship between investment advisers and mutual funds is fraught with potential conflicts of interest. The typical fund ordinarily is only a shell, organized and controlled by a separately owned investment company adviser, which selects its portfolio and administers its daily business. Compensation for these services is determined under an advisory contract, the terms of which are all too often dictated to unwary or negligent fund directors and fund shareholders by the investment adviser.

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2

The vulnerability of mutual fund shareholders to unscrupulous advisers prompted Congress to enact Section 20 of the Investment Company Amendments Act of 1970,

15 U.S.C. 禮 80a-35(b),1 imposing a fiduciary duty on the investment adviser with

respect to its receipt of compensation for services rendered to the fund. We are called upon to consider whether, in securing a mid-term modification of its advisory contract with American Investors Fund, Inc. (AIF), Chestnutt Corporation observed its duty of uncompromising fidelity to the interests of AIF security owners. In addition, we are required to decide whether the proxy statement sent to AIF shareholders contained

material misstatements or omissions in violation of 15 U.S.C. 禮 80a-20(a) and the

Security and Exchange Commission's Rule 14a-9. We hold that Chestnutt Corporation abused its position of trust by acquiring from the mutual fund, without full disclosure to the AIF Board of Directors, a patently one-sided revision of the advisory contract and that it subsequently violated Rule 14a-9 in obtaining shareholder ratification of the new contract on the basis of a misleading proxy statement. Accordingly, we affirm the judgment of the district court. We also remand, for the reasons hereinafter set forth, for a recalculation of damages.

I.3

A brief recitation of the facts will facilitate understanding the legal issues presented for review. AIF was founded in 1957 by George A. Chestnutt, Jr., who became and remains both a Director and President of the Fund. Like other mutual funds, AIF provided small investors an opportunity to pool their venture capital to obtain the benefits of professional financial advice and diversification at a relatively modest cost. The Fund was unusual, however, in that it offered its security holders an investment strategy inspired by the principles of what was characterized as Chartism.2

4

This policy was devised by Mr. Chestnutt, who managed the Fund's investments through his control of the investment adviser, appellant Chestnutt Corporation.3 The adviser, in addition to supervising the Fund's portfolio, furnished office space and clerical personnel, and paid both the salaries of the Fund's executives and all promotional expenses relating to Fund sales.4 In return, Chestnutt Corporation received quarterly reimbursement of its expenses and a fee calculated as follows:

5

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The fee was subject, however, to an "expense ratio limitation".5 Total charges to the Fund, including the fee, but excluding interest and taxes, could not exceed 1% of the value of the Fund's average monthly net assets for any year. Chestnutt Corporation's successful effort to increase this expense ratio limitation to 1 1/2% spawned the current litigation.

6

Prior to 1973, Chestnutt Corporation's fee was not seriously threatened by the expense ratio limitation. But by May of that year a general deterioration of securities prices had resulted in a sharp decline in the value of the Fund's assets.6 Inflation simultaneously was causing a rapid increase in the adviser's expenses. In an effort to limit rising costs, Chestnutt Corporation initiated a program of redemptions designed to eliminate shareholder accounts too small to justify service costs. The economies thus achieved, however, caused still greater reduction in the Fund's net asset value. This ominous conjunction of factors led Mr. Chestnutt to believe that, under the 1% expense ratio limitation provided by the two-year advisory contract in force since September 1, 1972, Chestnutt Corporation would be required to begin paying rebates to the Fund within two years.

7

To forestall this eventuality, Mr. Chestnutt decided to increase the expense ratio limitation to 1 1/2%. Acquiescence of the AIF Board of Directors was not difficult to obtain. Chestnutt first proposed revision of the advisory contract at the May 21, 1973, Board meeting. The measure was approved without any difficulty at the next meeting, on June 5. The directors of the Fund gave the proposal cursory scrutiny at best. Mr. Chestnutt at no time gave any indication that by this action, the Fund was foregoing a possible rebate in 1973; nor did he present any evidence to support his gloomy assertions that current trends threatened the financial viability of the investment adviser.7 It is clear from the record that Mr. Chestnutt's personal domination was such that the directors never considered for a moment opposing his suggestion.

8

Having secured the Board's consent, Mr. Chestnutt sought shareholder ratification of the proposed increase in the expense ratio limitation. The next Annual Meeting was scheduled for July 17, 1973. On June 21 proxy materials were mailed to the Fund's security holders. The materials justified the contract revision as one resulting from "cost increases over which neither the Fund nor the Adviser can exercise control," ignoring entirely the decline in the Fund's net asset value, an equally prominent factor in the "squeeze" on Chestnutt Corporation's profits. The proxy statement added, moreover, that "no higher costs would have been incurred by the Fund had the proposed new agreement been in effect in 1972," although Chestnutt knew the

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amended contract was likely to increase the ultimate compensation due the investment adviser in 1973.

9

Despite the effort of appellee Mildred Galfand, suing derivatively on behalf of the Fund, to secure a preliminary injunction,8 the Annual Meeting was held as scheduled on July 17 and the new advisory contract was ratified by a wide margin. The modification in the expense ratio took effect on September 1, 1973. Galfand, meanwhile, continued to pursue her remedy at law. A change in venue from the Eastern District of Pennsylvania to the Southern District of New York was subsequently granted, Galfand v. Chestnutt, 363 F.Supp. 296 (E.D.Pa.1973), and on July 23, 1975, Judge Brieant, after a trial without a jury, found that Chestnutt Corporation breached its fiduciary duty to AIF in securing the expense ratio increase and made false and misleading statements in the proxy materials to obtain shareholder

approval of the revamped advisory agreement, in violation of 15 U.S.C. 禮 80a-20(a)

and Rule 14a-9, 17 C.F.R. 禮 240.14a-9 (1976).9

II.10

Congress, in imposing a fiduciary obligation on investment advisers, plainly intended that their conduct be governed by the traditional rule of undivided loyalty implicit in the fiduciary bond.10 It is axiomatic, therefore, that a self-dealing fiduciary owes a duty of full disclosure to the beneficiary of his trust. Former Chief Judge Friendly stated the principle succinctly:

11 under the scheme of the Investment Company Act an investment adviser is "under a duty of full disclosure of information to . . . unaffiliated directors in every area where there was even a possible conflict of interest between their interests and the interests of the fund" a situation which occurs much more frequently in the relations between a mutual fund and its investment adviser than in ordinary business corporations . . .12

Fogel v. Chestnutt, 533 F.2d 731, 745 (2d Cir. 1975), cert. denied, --- U.S. ----, 97 S.Ct. 77, 50 L.Ed.2d 86 (1976), (citing Moses v. Burgin, 445 F.2d 369, 376 (1st Cir.), cert. denied, 404 U.S. 994, 92 S.Ct. 532, 30 L.Ed.2d 547 (1971)).11 Moreover, even where a fiduciary has made full disclosure, it is the duty of a federal court to subject the transaction to rigorous scrutiny for fairness. See Pepper v. Litton, 308 U.S. 295, 306-07, 60 S.Ct. 238, 84 L.Ed. 281 (1939).12 We believe it is clear that, in applying

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these standards, Chestnutt's conduct in obtaining approval of the contract modification must be found to have fallen far short of the elevated norm Congress expected.

13

A thorough search of the record reveals no evidence that Chestnutt, in discussing the issue with the AIF directors, made any reference to the fact or even suggested that the Fund would lose a rebate if the expense ratio were raised to 1 1/2% of average monthly net assets. And, although the financial soundness of the investment adviser is of proper concern to a mutual fund, Chestnutt failed to support his Cassandran prophecies of possible bankruptcy with financial statements or corroborating figures. Had he supplied the AIF Board of Directors with data more recent than the 1972 annual report, it would have been apparent that Chestnutt Corporation had ample assets13 and substantial income despite recent unfavorable trends. Chestnutt appears to have ignored completely his duty to promote responsible directorial judgment by supplying information sufficient to enable the Fund's Board to evaluate the new contract "with an eye eager to discern . . . rather than shut against" the interests of AIF. Fogel v. Chestnutt, supra at 749. His influence with the Fund's directors can hardly be questioned. The result of this dereliction was a patently one-sided revision of the advisory contract which placed the entire burden of rising costs and a falling market on the Fund, whose financial condition was not accorded even a passing concern.

III.14

Chestnutt asserts that to upset the advisory contract approved by the shareholders is tantamount to judicial meddling with corporate democracy. The irony of such an argument will become apparent after examination of the proxy materials, particularly when scrutinized in the light of the rules promulgated by the Securities and Exchange Commission to assure fair corporate suffrage by accurate explanation to the shareholder of issues upon which his vote is sought. See Mills v. Electric Auto-Lite Co., 396 U.S. 375, 381, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970).

15

We set out in full the relevant paragraph of the proxy statement purporting to advise AIF security holders of the rationale for the proposed increase in the expense ratio limitation:

16 As a result of cost increases over which neither the Fund nor the Adviser can exercise control, the Fund and the Adviser have determined that the 1% annual expense ratio limitation in the current Investment Advisory Agreement shall be increased to 1 1/2%.

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No increase in the fees paid or payable to the Adviser is proposed. The aggregate annual operating costs, including the fee of the Adviser, will be limited to 1 1/2% of average monthly net assets in the contract. Heretofore, the Advisory contract required the Adviser to reimburse the Fund to the extent that total annual expenses (exclusive of interest and taxes) exceeded 1% of average monthly net assets. Under the new Agreement, no reimbursement from the Adviser would be required unless and until total annual expenses of the Fund (again, excluding interest and taxes) exceeded 1 1/2% of average monthly net assets. The Investment Advisory fee schedule would not be changed under the new agreement; however, the higher allowable expense ratio limitation would benefit the Adviser by reducing the risk that some or all of the advisory fee would have to be reimbursed to the Fund due to an increase in rates for other expenses or changes in the average account size of American Investors Fund shareholders. No higher fees or costs would have been incurred by the Fund had the new Agreement been in effect in 1972.17

Judge Brieant found the italicized portions of this proxy statement false and misleading under Rule 14a-9.14 The district judge determined that the shareholders should have been informed that the new expense ratio was sought to avoid penalizing the adviser not only for cost increases beyond its control but also for depreciation of the Fund's net assets. In addition, according to Judge Brieant, the security holders should have been told that a refund might be due in 1973 if the 1% expense ratio term had remained in force for the duration of the old contract.15

18

But the appellants argue vigorously that these findings are infirm because Judge Brieant, lacking the guidance of the Supreme Court's opinion in TSC Industries v. Northway, 426 U.S. 438, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976), evaluated the materiality of the omitted facts under an erroneous standard. It is true, of course, that the test applied below omissions are material if "a reasonable investor might have considered them" so was repudiated in TSC Industries. The correct formulation was enunciated by the Supreme Court thus:

19 (An) omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote . . . Put another way, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the "total mix" of information made available. Id. at 449, 96 S.Ct. at 2133, 48 L.Ed.2d at 766.20

We are of the view that even under the TSC Industries test, the proxy statement here was materially misleading.

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21

In so holding, we have the benefit of Judge Brieant's careful appraisal of the key paragraph in the proxy statement. This paragraph deceptively stated Chestnutt's avowed reason for fearing the possibility of a future rebate by omitting to mention the primary component of the rebate formula declining Fund assets a subject of considerable interest to shareholders who were being asked effectively to increase the fee of their investment adviser. And the adversion to the absence of a rebate in 1972 if the 1 1/2% limitation had been in effect, without any indication whatever that a refund was even a remote possibility, under any set of circumstances, in 1973 and 1974, was a misleading half-truth. Chestnutt does not seriously dispute the finding that he and the fund directors believed a rebate possible. Indeed, this belief was precisely the reason they desired the expense ratio increase. By presenting some negative factors, the inclusion of these omitted facts certainly would have significantly altered the "total mix" of information made available to voting shareholders. Accordingly, since we find that shareholder approval for the revised advisory contract was secured by means of a materially misleading proxy statement, we affirm the district court's order

rescinding the new agreement, 15 U.S.C. 禮 80a-46(b).

IV.22

There remains the issue of damages for us to deal with. There is no dispute regarding Judge Brieant's finding that in 1973 Chestnutt Corporation was unjustly enriched under the voided contract by $18,330. The controversy revolves around the appropriate figure for 1974, when the challenged advisory contract was superseded on September 1 by a new one whose validity is not here in question. In light of the maze of figures presented by both sides at this appellate stage, we believe that a proper determination of damages must be based upon a clearer, more certain record. Accordingly, we remand for a recalculation of 1974 damages by the district judge. We are able, however, to provide some guidance on the method of computation. The court should include all expenses for July and August, 1974, in calculating the rebate. Moreover, we believe that the advisory fee for those two months should be included in the damage formula. Although the payment due is apparently measured by the value of the Fund's assets at the end of the quarter (i. e. October 1), the fee represented services rendered daily during July and August. We note that the parties contemplated such proration of expenses in their advisory contract:

23 P 9. For the quarter and the year in which this agreement terminates, there shall be an appropriate proration in the basis of the number of days that this Agreement is in effect during the quarter and the year respectively . . .24

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This merely treats the advisory fee as an accrued expense of the Fund.

25

The judgment is affirmed as modified by a recomputation of the damages on remand.

1 The statute provides in relevant part:(b) For the purposes of this subsection, the investment adviser of a registered investment company shall be deemed to have a fiduciary duty with respect to the receipt of compensation for services, or of payments of a material nature, paid by such registered investment company, or by the security holders thereof, to such investment adviser or any affiliated person of such investment adviser. An action may be brought under this subsection by the Commission, or by a security holder of such registered investment company on behalf of such company, against such investment adviser, or any affiliated person of such investment adviser, or any other person enumerated in subsection (a) of this section who has a fiduciary duty concerning such compensation or payments, for breach of fiduciary duty in respect of such compensation or payments paid by such registered investment company or by the security holders thereof to such investment adviser or person. With respect to any such action the following provisions shall apply:(1) It shall not be necessary to allege or prove that any defendant engaged in personal misconduct, and the plaintiff shall have the burden of proving a breach of fiduciary duty.(2) In any such action approval by the board of directors of such investment company of such compensation or payments, or of contracts or other arrangements providing for such compensation or payments, and ratification or approval of such compensation or payments, or of contracts or other arrangements providing for such compensation or payments, by the shareholders of such investment company, shall be given such consideration by the court as is deemed appropriate under all the circumstances.(3) No such action shall be brought or maintained against any person other than the recipient of such compensation or payments, and no damages or other relief shall be granted against any person other than the recipient of such compensation or payments. No award of damages shall be recoverable for any period prior to one year before the action was instituted. Any award of damages against such recipient shall be limited to the actual damages resulting from the breach of fiduciary duty and shall in no event exceed the amount of compensation or payments received from such investment company, or the security holders thereof, by such recipient.(4) This subsection shall not apply to compensation or payments made in connection with transactions subject to section 80a-17 of this title, or rules, regulations, or orders thereunder, or to sales loans for the acquisition of any security issued by a registered investment company.(5) Any action pursuant to this subsection may be brought only in an appropriate district court of the United States.

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(6) No finding by a court with respect to a breach of fiduciary duty under this subsection shall be made a basis (A) for a finding of a violation of this subchapter for the purposes of sections 80a-9 and 80a-48 of this title, section 78o of this title, or section 80b-3 of this title, or (B) for an injunction to prohibit any person from serving in any of the capacities enumerated in subsection (a) of this section.

15 U.S.C. 禮 80a-35(b).

2 Portfolio transactions were executed on the basis of complex formulae derived from statistical records and charts depicting the historical price and volume fluctuations of selected stocks, correlated with technical studies of money supply, credit availability and banking trends3 Mr. Chestnutt was President, Director and 47% owner of the investment adviser4 Paragraph 7 of the Advisory Contract provides:7 The Investment Adviser shall furnish to the Corporation such office space as may be necessary for the suitable conduct of the Corporation's business and all necessary light, heat, telephone service, office equipment and stationery and stenographic, clerical, mailing and messenger service in connection with such office; and pay the salaries of all of the Fund's executives, and pay all promotional, travel, and entertaining expenses relating to Fund salesQuarterly Equivalent Net Assets Rate Annnual Rate of the Fund 0.2% 0.8% on the first $50 million 0.15% 0.6% on the next $50 million 0.1% 0.4% on the next $200 million 0.0875% 0.35% on the next $200 million 0.075% 0.3% on the net assets in excess of $500 million.5 The expense ratio limitation is included in Paragraph 9 of the Advisory Contract:provided, however, that the annual fee of the Investment Adviser shall not be more than an amount which, when added to the other charges of the Corporation (exclusive of interest and taxes) shall result in total charges per annum to the Corporation inclusive of the fee of the Investment Adviser (but exclusive of interest and taxes) of 1% of the value of the Corporation's average monthly net assets for any year.6 The market value of AIF's assets had declined from $220 million in September, 1972 to less than $150 million in May, 19737 The district court found Chestnutt Corporation's income had been decreasing but was still "substantial." Fees from AIF for the first quarter of 1973 exceeded $284,000,

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down only fractionally from the corresponding period in 1972. And Mr. Chestnutt's salary approached $80,000 in 1972 and 1973, a significant sum even when compared to his $130,000 income several years earlier8 Galfand v. Chestnutt, 363 F.Supp. 291 (E.D.Pa.1973)9 Galfand v. Chestnutt, 402 F.Supp. 1318 (S.D.N.Y.1975)10 See Rosenfeld v. Black, 445 F.2d 1337, 1343-45 (2d Cir. 1971), cert. dismissed, 409 U.S. 802, 93 S.Ct. 24, 34 L.Ed.2d 62 (1972) (federal standard of directorial fiduciary responsibility incorporates, where appropriate, standards of the common law), and cases cited therein11 In Fogel, mutual fund shareholders alleged that the adviser had violated its fiduciary

duty by failing to apprise independent fund directors, 15 U.S.C. 禮 80a-2, of the

possibility of using volume discounts on portfolio brokerage transactions to reduce advisory fees. See also portions of the legislative history describing the obligation of the adviser to supply fund directors with information reasonably necessary to perform their evaluative function, 1970 U.S.Code Cong. & Adm.News, p. 491012 Congress implicitly approved evaluation of advisory fee structures under traditional equitable standards by disavowing cases which upset management contracts only upon a showing of "corporate waste." See, e. g., Saxe v. Brady, 40 Del.Ch. 474, 184 A.2d 602 (1962); 1970 U.S.Code Cong. & Adm.News, pp. 4901-0313 Chestnutt Corporation's total current assets on December 31, 1972 were $759,56414 Rule 14a-9, 17 C.F.R. 禮 240.14a-9(a) was promulgated by the Securities and

Exchange Commission pursuant to 禮 14(a) of the Securities Exchange Act of 1934,

15 U.S.C. 禮 78n(a), and provides:

禮 240.14a-9 False or misleading statements.

(a) No solicitation subject to this regulation shall be made by means of any proxy statement, form of proxy, notice of meeting or other communication, written or oral, containing any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of a proxy for the same meeting or subject matter which has become false or misleading.

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The Rule is pertinent here by virtue of Section 20(a) of the Investment Company Act,

15 U.S.C. 禮 80a-20(a), and the Commission's Rule 20a-1, 17 C.F.R. 禮 270.20(a)-1,

making the proxy rules applicable to securities issued by registered investment companies.15 Appellant argues that he cannot be held liable for the inaccuracy of the last sentence quoted above because the SEC required him to include it in the proxy statement. But it is axiomatic that the issuer of a proxy statement is responsible for the truthfulness of its assertions, see, e. g., Rule 14a-9(b). Moreover, Chestnutt easily could have clarified the sentence to avoid misleading Fund shareholders. Finally, appellant conveniently ignores that the adviser vehemently rejected an SEC request to include in the proxy materials a statement that AIF paid a higher advisory fee than most other mutual funds

（三）非公开募集基金第十章 非公开募集基金　　第八十八条 非公开募集基金应当向合格投资者募集，合格投资者累计不得超过二百人。　　前款所称合格投资者，是指达到规定资产规模或者收入水平，并且具备相应的风险识别能力和风险承担能力、其基金份额认购金额不低于规定限额的单位和个人。　　合格投资者的具体标准由国务院证券监督管理机构规定。　　第八十九条 除基金合同另有约定外，非公开募集基金应当由基金托管人托管。　　第九十条 担任非公开募集基金的基金管理人，应当按照规定向基金行业协会履行登记手续，报送基本情况。

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　　第九十一条 未经登记，任何单位或者个人不得使用“基金”或者“基金管理”字样或者近似名称进行证券投资活动；但是，法律、行政法规另有规定的除外。　　第九十二条 非公开募集基金，不得向合格投资者之外的单位和个人募集资金，不得通过报刊、电台、电视台、互联网等公众传播媒体或者讲座、报告会、分析会等方式向不特定对象宣传推介。　　第九十三条 非公开募集基金，应当制定并签订基金合同。基金合同应当包括下列内容：　　(一)基金份额持有人、基金管理人、基金托管人的权利、义务；　　(二)基金的运作方式；　　(三)基金的出资方式、数额和认缴期限；　　(四)基金的投资范围、投资策略和投资限制；　　(五)基金收益分配原则、执行方式；　　(六)基金承担的有关费用；　　(七)基金信息提供的内容、方式；　　(八)基金份额的认购、赎回或者转让的程序和方式；　　(九)基金合同变更、解除和终止的事由、程序；　　(十)基金财产清算方式；　　(十一)当事人约定的其他事项。　　基金份额持有人转让基金份额的，应当符合本法第八十八条、第九十二条的规定。

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　　第九十四条 按照基金合同约定，非公开募集基金可以由部分基金份额持有人作为基金管理人负责基金的投资管理活动，并在基金财产不足以清偿其债务时对基金财产的债务承担无限连带责任。　　前款规定的非公开募集基金，其基金合同还应载明：　　(一)承担无限连带责任的基金份额持有人和其他基金份额持有人的姓名或者名称、住所；　　(二)承担无限连带责任的基金份额持有人的除名条件和更换程序；　　(三)基金份额持有人增加、退出的条件、程序以及相关责任；　　(四)承担无限连带责任的基金份额持有人和其他基金份额持有人的转换程序。　　第九十五条 非公开募集基金募集完毕，基金管理人应当向基金行业协会备案。对募集的资金总额或者基金份额持有人的人数达到规定标准的基金，基金行业协会应当向国务院证券监督管理机构报告。　　非公开募集基金财产的证券投资，包括买卖公开发行的股份有限公司股票、债券、基金份额，以及国务院证券监督管理机构规定的其他证券及其衍生品种。　　第九十六条 基金管理人、基金托管人应当按照基金合同的约定，向基金份额持有人提供基金信息。第九十七条 专门从事非公开募集基金管理业务的基金管理人，其股东、高级

管理人员、经营期限、管理的基金资产规模等符合规定条件的，经国务院证券监督管理机构核准，可以从事公开募集基金管理业务。

六、理财（二）各种形式的资产管理

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七、理财（三）：财富管理《银行销售信托产品承担什么责任？》，《北京航天航空大学学报》发表

八、并购证交会-诉-卡特·哈维莱·哈勒公司（第九巡回法院，1985年）

SEC v. Carter Hawley Hale, 760 F.2d 945 (9th Cir. 1985)

事由：CCH公司回购本公司股票，以挫败第三方发出的公开收购要约，但并未遵

守公开要约的规定。证交会提出起诉，要求法院制止 CCH公司的行为。法律问题；

CCH公司回购本公司股票，是否构成公开收购要约？结论：

CCH公司回购本公司股票，并没有构成公开收购要约，因为既没有对目标公司造成压力，也没有一定的时间表。讨论：

兼并收购要约：公司收购方的双刃剑在美国的公司并购活动中，相关法律制约主要来自公司法和证券法两个方

面。根据公司法，被收购公司的高管和董事有责任为公司谋取最高的售价，而证券法则要求收购方必须履行其披露义务，尤其是在发出兼并收购要约时，必须履行其披露义务，是敌意收购存在的前提。这是因为公开收购要约具有压迫性，兼并收购要约通常都是两步法：先以高价收购目标公司的部分股票，获得公司的控制权后再压迫其他股东出售其持有的公司股票。《布莱克法律词典》对兼并

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收购要约有如下解释：

公司或个人公开宣布，愿意以高于现市价的价格收购一家公司的“要约”股票，以收购或控制这家公司。为获得控制权，一家公司向另一架公司发出购买其股票的要约，有时也有条件：要约方可以接收的最低和／或多多股票。此收购要约通过报纸广告传递，（如果要约方能够获得股东名单的话——除非是友好收购，这种情况并不常见），也可以向名单上的所有股东邮寄收购要约。此收购要约旨在绕过反对收购的被收购公司管理层。1

根据《威廉法》第 13（d）节，如果不是兼并收购要约，收购目标公司 5%的股份之后披露即可。但如果是公开收购要约，要求就更严，再购入更多股票之前必须发出通知；（2）兼并收购要约发出之后，有效期至少不得少于 20 个业务日；（3）必须遵守第 14（d）中有关按比例收购等规定，而且有可能触犯反欺诈条款第 14（e）节。中国采取的是一种变通办法。《上市公司收购管理办法》2（下称“《收购管理

办法》”）规定，投资者“可以向被收购公司所有股东发出收购所有的全部股份的要约，也可以向被收购公司所有股东发出收购其所持有的部分股份的要约” 。3但按照《收购管理办法》的规定，除非（1）“通过证券交易所的证券交易；（2）收购人持有一个上市公司的股份达到该公司已发行股份的 30%时；而且是（3）继续增持股份的，否则无须采取要约方式进行。4显然，中国关于收购要约的要求不如美国的严，但也很正常，因为就中国的并购业务而言，政府的监管1 Henry Campbell Black, M. A., Black’s Law Dictionary, (St. Paul, Minn.,West Publishing Co., 1990), p.1468.2 证监会令第 35号。3 《收购管理办法》第二十三条。4 《收购管理办法》第二十四条。

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更为重要。兼并收购要约的概念很重要，但《威廉法》中并没有界定，美国最高法院又

迟迟不表态，所以美国法院各显神通，推出了若干标准。按照卡特案判例，是否构成兼并收购要约，要害问题是看是否对股东产生压力。在卡特案中，法官认定，公司股东并未受到市场压力。法官套用了威尔曼检验标准，并得出以下结论：（1）收购要约并没有固定的时间，只是与第三方的兼并收购要约挂钩；（2）股东人数没有上限，而且后来增加了收购的股票数量，没有股票的特定数目；（3）股票溢价只是高出兼并要约公布之前的市场价格。

SEC v. CARTER HAWLEY HALE STORES, INC.

760 F. 2d 945 (1985)

Before GOODWIN, SNEED, and SKOPIL, Circuit Judges.

SKOPIL, Circuit Judge:

1The issue in this case arises out of an attempt by The Limited ("Limited"), an Ohio corporation, to take over Carter Hawley Hale Stores, Inc. ("CHH"), a publicly-held Los Angeles corporation. The SEC commenced the present action for injunctive relief to restrain CHH from repurchasing its own stock in an attempt to defeat the Limited takeover attempt without complying with the tender offer regulations. The district court concluded CHH's repurchase program was not a tender offer. The SEC appeals from the district court's denial of its motion for a preliminary injunction. We affirm.

FACTS AND PROCEEDINGS BELOW

2On April 4, 1984 Limited commenced a cash tender offer for 20.3 million shares of CHH common stock, representing approximately 55% of the total shares outstanding, at $30 per share. Prior to the announced offer, CHH stock was trading at approximately $23.78 per share (pre-tender offer price). Limited disclosed that if its offer succeeded, it would exchange the

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remaining CHH shares for a fixed amount of Limited shares in a second-step merger.

3In compliance with section 14(d) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. Sec. 78n(d) (1982), Limited filed a schedule 14D-1 disclosing all pertinent information about its offer. The schedule stated that (1) the offer would remain open for 20-days, (2) the tendered shares could be withdrawn until April 19, 1984, and (3) in the event the offer was oversubscribed, shares would be subject to purchase on a pro rata basis.

4While CHH initially took no public position on the offer, it filed an action to enjoin Limited's attempted takeover. Carter Hawley Hale Stores, Inc. v. The Limited, Inc., 587 F.Supp. 246 (C.D.Cal.1984). CHH's motion for an injunction was denied. Id. From April 4, 1984 until April 16, 1984 CHH's incumbent management discussed a response to Limited's offer. During that time 14 million shares, about 40% of CHH's common stock, were traded. The price of CHH stock increased to approximately $29.25 per share. CHH shares became concentrated in the hands of risk arbitrageurs.

5On April 16, 1984 CHH responded to Limited's offer. CHH issued a press release announcing its opposition to the offer because it was "inadequate and not in the best interests of CHH or its shareholders." CHH also publicly announced an agreement with General Cinema Corporation ("General Cinema"). CHH sold one million shares of convertible preferred stock to General Cinema for $300 million. The preferred shares possessed a vote equivalent to 22% of voting shares outstanding. General Cinema's shares were to be voted pursuant to CHH's Board of Directors recommendations. General Cinema was also granted an option to purchase Walden Book Company, Inc., a profitable CHH subsidiary, for approximately $285 million. Finally, CHH announced a plan to repurchase up to 15 million shares of its own common stock for an amount not to exceed $500 million. If all 15 million shares were purchased, General Cinema's shares would represent 33% of CHH's outstanding voting shares.

6CHH's public announcement stated the actions taken were "to defeat the attempt by Limited to gain voting control of the company and to afford shareholders who wished to sell shares at this time an opportunity to do so." CHH's actions were revealed by press release, a letter from CHH's Chairman to shareholders, and by documents filed with the Securities and Exchange

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Commission ("SEC")--a Schedule 14D-9 and Rule 13e-1 transaction statement. These disclosures were reported by wire services, national financial newspapers, and newspapers of general circulation. Limited sought a temporary restraining order against CHH's repurchase of its shares. The application was denied. Limited withdrew its motion for a preliminary injunction.

7CHH began to repurchase its shares on April 16, 1984. In a one-hour period CHH purchased approximately 244,000 shares at an average price of $25.25 per share. On April 17, 1984 CHH purchased approximately 6.5 million shares in a two-hour trading period at an average price of $25.88 per share. By April 22, 1984 CHH had purchased a total of 15 million shares. It then announced an increase in the number of shares authorized for purchase to 18.5 million.

8On April 24, 1984, the same day Limited was permitted to close its offer and start purchasing, CHH terminated its repurchase program having purchased approximately 17.5 million shares, over 50% of the common shares outstanding. On April 25, 1984 Limited revised its offer increasing the offering price to $35.00 per share and eliminating the second-step merger. The market price for CHH then reached a high of $32.00 per share. On May 21, 1984 Limited withdrew its offer. The market price of CHH promptly fell to $20.62 per share, a price below the pre-tender offer price.

9On May 2, 1984, two and one-half weeks after the repurchase program was announced and one week after its apparent completion,1 the SEC filed this action for injunctive relief. The SEC alleged that CHH's repurchase program constituted a tender offer conducted in violation of section 13(e) of the Exchange Act, 15 U.S.C. Sec. 78m(e) and Rule 13e-4, 17 C.F.R. Sec. 240.13e-4. On May 5, 1984 a temporary restraining order was granted. CHH was temporarily enjoined from further stock repurchases. The district court denied SEC's motion for a preliminary injunction, finding the SEC failed to carry its burden of establishing "the reasonable likelihood of future violations ... [or] ... a 'fair chance of success on the merits'...." SEC v. Carter Hawley Hale Stores, Inc., 587 F.Supp. 1248, 1257 (C.D.Cal.1984) (citations omitted). The court found CHH's repurchase program was not a tender offer because the eight-factor test proposed by the SEC and adopted in Wellman v. Dickinson, 475 F.Supp. 783 (S.D.N.Y.1979), aff'd on other grounds, 682 F.2d 355 (2d Cir.1982), cert. denied, 460 U.S. 1069, 103

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S.Ct. 1522, 75 L.Ed.2d 946 (1983), had not been satisfied. SEC v. Carter Hawley Hale Stores, Inc., 587 F.Supp. at 1255. The court also refused to adopt, at the urging of the SEC, the alternative test of what constitutes a tender offer as enunciated in S-G Securities, Inc. v. Fuqua Investment Co., 466 F.Supp. 1114 (D.Mass.1978). 587 F.Supp. at 1256-57. On May 9, 1984 the SEC filed an emergency application for an injunction pending appeal to this court. That application was denied.

DISCUSSION

10The grant or denial of a preliminary injunction is reviewed to determine if the district court abused its discretion. Lopez v. Heckler, 725 F.2d 1489, 1497 (9th Cir.), rev'd on other grounds, 463 U.S. 1328, 104 S.Ct. 10, 77 L.Ed.2d 1431 (1984). A district court abuses its discretion if it rests its conclusion on clearly erroneous factual findings or an incorrect legal standard. Id.; Apple Computer, Inc. v. Formula International, Inc., 725 F.2d 521, 523 (9th Cir.1984).

11The SEC urges two principal arguments on appeal: (1) the district court erred in concluding that CHH's repurchase program was not a tender offer under the eight-factor Wellman test, and (2) the district court erred in declining to apply the definition of a tender offer enunciated in S-G Securities, 466 F.Supp. at 1126-27. Resolution of these issues on appeal presents the difficult task of determining whether CHH's repurchase of shares during a third-party tender offer itself constituted a tender offer.

121. The Williams Act.

A. Congressional Purposes

13The Williams Act amendments to the Exchange Act were enacted in response to the growing use of tender offers to achieve corporate control. Edgar v. Mite Corp., 457 U.S. 624, 632, 102 S.Ct. 2629, 2635, 73 L.Ed.2d 269 (1982) (citing Piper v. Chris-Craft Industries, 430 U.S. 1, 22, 97 S.Ct. 926, 939, 51 L.Ed.2d 124 (1977)). Prior to the passage of the Act, shareholders of target companies were often forced to act hastily on offers without the benefit of full disclosure. See H.R.Rep. No. 1711, 90th Cong., 2d Sess. (1968), reprinted in 1968 U.S.Code, Cong. & Admin.News 2811 ("House Report 1711").2 The Williams Act was intended to ensure that investors responding to tender offers

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received full and fair disclosure, analogous to that received in proxy contests. The Act was also designed to provide shareholders an opportunity to examine all relevant facts in an effort to reach a decision without being subject to unwarranted pressure. House Report 1711.

14This policy is reflected in section 14(d), which governs third-party tender offers, and which prohibits a tender offer unless shareholders are provided with certain procedural and substantive protections including: full disclosure; time in which to make an investment decision; withdrawal rights; and pro rata purchase of shares accepted in the event the offer is oversubscribed. 15 U.S.C. Sec. 78n(d) (1981); 17 C.F.R. Sec. 240.14d-6 (1984); 17 C.F.R. Sec. 240.14d-7(a)(1)-14d-7(a)(2) (1984).

15There are additional congressional concerns underlying the Williams Act. In its effort to protect investors, Congress recognized the need to "avoid favoring either management or the takeover bidder." Edgar, 456 U.S. at 633, 102 S.Ct. at 2636; see also Financial General Bank Shares, Inc. v. Lance, [1978] Fed.Sec.L.Rptr. (CCH) p 96,403 at 93,424-25 (D.D.C.1978) (quoting Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 58, 95 S.Ct. 2069, 2075, 45 L.Ed.2d 12 (1975)). The Supreme Court has recognized that to serve this policy it is necessary to withhold "from management or the bidder any undue advantage that could frustrate the exercise of informed choice." Edgar, 456 U.S. at 634, 102 S.Ct. at 2636-37. Congress was also concerned about avoiding undue interference with the free and open market in securities. City Investing Co. v. Simcox, 633 F.2d 56, 62 n. 14 (7th Cir.1980) (noting less burdensome regulations in cases involving certain open market purchases); see also 113 Cong.Rec. 856 (1968). Each of these congressional concerns is implicated in the determination of whether CHH's issuer repurchase program constituted a tender offer.

B. Issuer Repurchases Under Section 13(e)

16Issuer repurchases and tender offers are governed in relevant part by section 13(e) of the Williams Act and Rules 13e-1 and 13e-4 promulgated thereunder. 15 U.S.C. Sec. 78m(e) (1981); 17 C.F.R. Sec. 240.13e-1 (1984); 17 C.F.R. Sec. 240.13e-4 (1984).

17The SEC argues that the district court erred in concluding that

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issuer repurchases, which had the intent and effect of defeating a third-party tender offer, are authorized by the tender offer rules and regulations. The legislative history of these provisions is unclear. Congress apparently was aware of an intent by the SEC to regulate issuer tender offers to the same extent as third-party offers. Senate Hearings 214-16, 248; Exchange Act Release No. 16,112 [1979] Fed.Sec.L.Rptr. (CCH) p 82,182 at 82,205 (Aug. 16, 1979) (proposed amendments to tender offer rules). At the same time, Congress recognized issuers might engage in "substantial repurchase programs ... inevitably affect[ing] market performance and price levels." House Hearings at 14-15; see also House Report 1711, U.S.Code Cong. & Admin.News 1968, at 2814-15. Such repurchase programs might be undertaken for any number of legitimate purposes, including with the intent "to preserve or strengthen ... control by counteracting tender offer or other takeover attempts...." House Report 1711, U.S.Code Cong. & Admin.News 1968, at 2814; House Hearings at 15. Congress neither explicitly banned nor authorized such a practice. Congress did grant the SEC authority to adopt appropriate regulations to carry out congressional intent with respect to issuer repurchases. The legislative history of section 13(e) is not helpful in resolving the issues.

18There is also little guidance in the SEC Rules promulgated in response to the legislative grant of authority. Rule 13e-1 prohibits an issuer from repurchasing its own stock during a third-party tender offer unless it discloses certain minimal information. 17 C.F.R. Sec. 240.13e-1 (1984). The language of Rule 13e-1 is prohibitory rather than permissive. It nonetheless evidences a recognition that not all issuer repurchases during a third-party tender offer are tender offers. Id. In contrast, Rule 13e-4 recognizes that issuers, like third parties, may engage in repurchase activity amounting to a tender offer and subject to the same procedural and substantive safeguards as a third-party tender offer. 17 C.F.R. Sec. 240.13e-4 (1984). The regulations do not specify when a repurchase by an issuer amounts to a tender offer governed by Rule 13e-4 rather than 13e-1.3

19We decline to adopt either the broadest construction of Rule 13e-4, to define issuer tender offers as virtually all substantial repurchases during a third-party tender offer, or the broadest construction of Rule 13e-1, to create an exception from the tender offer requirements for issuer repurchases made during a third-party tender offer. Like the district court, we resolve the question

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of whether CHH's repurchase program was a tender offer by considering the eight-factor test established in Wellman, 587 F.Supp. at 1256-57.4

20To serve the purposes of the Williams Act, there is a need for flexibility in fashioning a definition of a tender offer. See Smallwood v. Pearl Brewing Co., 489 F.2d 579 (5th Cir.), cert. denied, 419 U.S. 873, 95 S.Ct. 134, 42 L.Ed.2d 113 (1974). The Wellman factors seem particularly well suited in determining when an issuer repurchase program during a third-party tender offer will itself constitute a tender offer. Wellman focuses, inter alia, on the manner in which the offer is conducted and whether the offer has the overall effect of pressuring shareholders into selling their stock. Wellman, 475 F.Supp. at 823-24. Application of the Wellman factors to the unique facts and circumstances surrounding issuer repurchases should serve to effect congressional concern for the needs of the shareholder, the need to avoid giving either the target or the offeror any advantage, and the need to maintain a free and open market for securities.

212. Application of the Wellman Factors.

22Under the Wellman test, the existence of a tender offer is determined by examining the following factors:

23(1) Active and widespread solicitation of public shareholders for the shares of an issuer; (2) solicitation made for a substantial percentage of the issuer's stock; (3) offer to purchase made at a premium over the prevailing market price; (4) terms of the offer are firm rather than negotiable; (5) offer contingent on the tender of a fixed number of shares, often subject to a fixed maximum number to be purchased; (6) offer open only for a limited period of time; (7) offeree subjected to pressure to sell his stock; [and (8) ] public announcements of a purchasing program concerning the target company precede or accompany rapid accumulation of a large amount of target company's securities.

24475 F.Supp. at 823-24.

25Not all factors need be present to find a tender offer; rather, they provide some guidance as to the traditional indicia of a tender offer. Id. at 824; see also Zuckerman v. Franz, 573 F.Supp. 351, 358 (S.D.Fla.1983).

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26The district court concluded CHH's repurchase program was not a tender offer under Wellman because only "two of the eight indicia" were present. 587 F.Supp. at 1255. The SEC claims the district court erred in applying Wellman because it gave insufficient weight to the pressure exerted on shareholders; it ignored the existence of a competitive tender offer; and it failed to consider that CHH's offer at the market price was in essence a premium because the price had already risen above pre-tender offer levels.

A. Active and Widespread Solicitation

27The evidence was uncontraverted that there was "no direct solicitation of shareholders." 587 F.Supp. 1253. No active and widespread solicitation occurred. See Brascan Ltd. v. Edper Equities Ltd., 477 F.Supp. 773, 789 (S.D.N.Y.1979) (no tender offer where defendant "scrupulously avoided any solicitation upon the advice of his lawyers"). Nor did the publicity surrounding CHH's repurchase program result in a solicitation. 587 F.Supp. 1253-54. The only public announcements by CHH were those mandated by SEC or Exchange rules. See Ludlow Corp. v. Tyco Laboratories, 529 F.Supp. 62, 68-69 (D.Mass.1981) (schedule 13d filed by purchaser could not be characterized as forbidden publicity); Crane Co. v. Harsco Corp., 511 F.Supp. 294, 303 (D.Dela.1981) (Rule 13e-1 transaction statement and required press releases do not constitute a solicitation); but cf. S-G Securities, Inc., 466 F.Supp. at 1119-21 (tender offer present where numerous press releases publicized terms of offer).

28B. Solicitation for a Substantial Percentage of Issuer's Shares

29Because there was no active and widespread solicitation, the district court found the repurchase could not have involved a solicitation for a substantial percentage of CHH's shares. 587 F.Supp. 1253-54. It is unclear whether the proper focus of this factor is the solicitation or the percentage of stock solicited. The district court probably erred in concluding that, absent a solicitation under the first Wellman factor, the second factor cannot be satisfied, see Hoover Co. v. Fuqua Industries, [1979-80] Fed.Sec.L.Rprt. (CCH) p 97,107 at 96,148 n. 4 (N.D.Ohio 1979) (second Wellman factor did not incorporate the type of solicitation described in factor one), but we need not decide that here. The solicitation and percentage of stock elements of the second factor often will be addressed adequately in an evaluation

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of the first Wellman factor, which is concerned with solicitation, and the eighth Wellman factor, which focuses on the amount of securities accumulated. In this case CHH did not engage in a solicitation under the first Wellman factor but did accumulate a large percentage of stock as defined under the eighth Wellman factor. An evaluation of the second Wellman factor does not alter the probability of finding a tender offer.

C. Premium Over Prevailing Market Price

30The SEC contends the open market purchases made by CHH at market prices were in fact made at a premium not over market price but over the pre-tender offer price. At the time of CHH's repurchases, the market price for CHH's shares (ranging from $24.00 to $26.00 per share) had risen above the pre-tender offer price (approximately $22.00 per share). Given ordinary market dynamics, the price of a target company's stock will rise following an announced tender offer. Under the SEC's definition of a premium as a price greater than the pre-tender offer price, a premium will always exist when a target company makes open market purchases in response to a tender offer even though the increase in market price is attributable to the action of the third-party offeror and not the target company. See LTV Corp. v. Grumman Corp., 526 F.Supp. 106, 109 & n. 7 (E.D.N.Y.1981) (an increase in price due to increased demand during a tender offer does not represent a premium). The SEC definition not only eliminates consideration of this Wellman factor in the context of issuer repurchases during a tender offer, but also underestimates congressional concern for preserving the free and open market. The district court did not err in concluding a premium is determined not by reference to pre-tender offer price, but rather by reference to market price. This is the definition previously urged by the SEC, Exchange Act Release No. 16,385 [1979-80] Fed.Sec.L.Rptr. (CCH) p 82,374 at 82,605 (Nov. 29, 1979) (footnotes omitted) (proposed amendments to tender offer rules) (premium defined as price "in excess of ... the current market price...."), and is the definition we now apply. See LTV Corp., 526 F.Supp. at 109 & n. 7.

D. Terms of Offer Not Firm

31There is no dispute that CHH engaged in a number of transactions or purchases at many different market prices. 587 F.Supp. at 1254.

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32E. Offer Not Contingent on Tender of Fixed Minimum Number of Shares

33Similarly, while CHH indicated it would purchase up to 15 million shares, CHH's purchases were not contingent on the tender of a fixed minimum number of shares. 587 F.Supp. at 1254.

F. Not Open For Only a Limited Time

34CHH's offer to repurchase was not open for only a limited period of time but rather was open "during the pendency of the tender offer of The Limited." 587 F.Supp. at 1255. The SEC argues that the offer was in fact open for only a limited time, because CHH would only repurchase stock until 15 million shares were acquired. The fact that 15 million shares were acquired in a short period of time does not translate into an issuer-imposed time limitation. The time within which the repurchases were made was a product of ordinary market forces, not the terms of CHH's repurchase program.

35G-H. Shareholder Pressure and Public Announcements Accompanying a Large Accumulation of Stock

36With regard to the seventh Wellman factor, following a public announcement, CHH repurchased over the period of seven trading days more than 50% of its outstanding shares. 587 F.Supp. at 1255. The eighth Wellman factor was met.

37The district court found that while many shareholders may have felt pressured or compelled to sell their shares, CHH itself did not exert on shareholders the kind of pressure the Williams Act proscribes. Id.

38While there certainly was shareholder pressure in this case, it was largely the pressure of the marketplace and not the type of untoward pressure the tender offer regulations were designed to prohibit. See Panter v. Marshall Field & Co., 646 F.2d 271, 286 (7th Cir.) (where no deadline and no premium, shareholders "were simply not subjected to the proscribed pressures the Williams Act was designed to alleviate"), cert. denied, 454 U.S. 1092, 102 S.Ct. 658, 70 L.Ed.2d 631 (1981); Brascan Ltd. v. Edper Equities, 477 F.Supp. at 789-92 (without high premium and threat that the offer will disappear, large purchases in short time do not represent the

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kind of pressure the Williams Act was designed to prevent); Kennecott Copper Corp. v. Curtiss-Wright Corp., 449 F.Supp. 951, 961 (S.D.N.Y.), aff'd in relevant part, rev'd in part, 584 F.2d 1195, 1207 (2d Cir.1978) (where no deadline and no premium, no pressure, other than normal pressure of the marketplace, exerted on shareholders).

39CHH's purchases were made in the open market, at market and not premium prices, without fixed terms and were not contingent upon the tender of a fixed minimum number of shares. CHH's repurchase program had none of the traditional indicia of a tender offer. See, e.g., Energy Ventures, Inc. v. Appalachian Co., 587 F.Supp. 734, 739 (D.Del.1984) (major acquisition program involving open market purchases not subject to tender offer regulation); Ludlow Corp. v. Tyco Laboratories, Inc., 529 F.Supp. at 68 (no tender offer where shareholders not pressured into making hasty ill-advised decision due to premium, fixed terms, or active solicitation); LTV Corp. v. Grumman, 526 F.Supp. at 109 (massive buying program, with attendant publicity, made with intent to defeat third-party tender offer, not itself a tender offer); Brascan Ltd. v. Edper Equities, 477 F.Supp. at 792 (the pressure the Williams Act attempts to eliminate is that caused by "a high premium with a threat that the offer will disappear within a certain time").

40The shareholder pressure in this case did not result from any untoward action on the part of CHH. Rather, it resulted from market forces, the third-party offer, and the fear that at the expiration of the offer the price of CHH shares would decrease.

41The district court did not abuse its discretion in concluding that under the Wellman eight factor test, CHH's repurchase program did not constitute a tender offer.

423. Alternative S-G Securities Test.

43The SEC finally urges that even if the CHH repurchase program did not constitute a tender offer under the Wellman test, the district court erred in refusing to apply the test in S-G Securities, 466 F.Supp. at 1114.5 Under the more liberal S-G Securities test, a tender offer is present if there are

44(1) A publicly announced intention by the purchaser to acquire a block of the stock of the target company for purposes of

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acquiring control thereof, and (2) a subsequent rapid acquisition by the purchaser of large blocks of stock through open market and privately negotiated purchases.

45Id. at 1126-27.

46There are a number of sound reasons for rejecting the S-G Securities test. The test is vague and difficult to apply. It offers little guidance to the issuer as to when his conduct will come within the ambit of Rule 13e-4 as opposed to Rule 13e-1. SEC v. Carter Hawley Hale Stores, 587 F.Supp. at 1256-57. A determination of the existence of a tender offer under S-G Securities is largely subjective and made in hindsight based on an ex post facto evaluation of the response in the marketplace to the repurchase program. Id. at 1257. The SEC's contention that these concerns are irrelevant when the issuer's repurchases are made with the intent to defeat a third-party offer is without merit. See, e.g., LTV Corp. v. Grumman Corp., 526 F.Supp. at 109-10 (Rule 13e-1 may apply to open market purchases even when made to thwart a tender offer); Crane Co. v. Harsco Corp., 511 F.Supp. 294, 300-301 (D.Dela.1981) (same).

47The SEC finds further support for its application of the two-pronged S-G Securities test in the overriding legislative intent "to ensure that shareholders ... are adequately protected from pressure tactics ... [forcing them to make] ... ill-considered investment decisions." The S-G Securities test does reflect congressional concern for shareholders; however, the same can be said of the Wellman test. The legislative intent in the context of open market repurchases during third-party tender offers is, at best, unclear. 587 F.Supp. 1256; see pages 949-950, supra. The S-G Securities test, unlike the Wellman test, does little to reflect objectively the multiple congressional concerns underlying the Williams Act, including due regard for the free and open market in securities. See page 948, supra.

48We decline to abandon the Wellman test in favor of the vague standard enunciated in S-G Securities. The district court did not err in declining to apply the S-G Securities test or in finding CHH's repurchases were not a tender offer under Wellman.

49AFFIRMED.

1

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In addition to seeking to enjoin further stock purchases, the SEC sought preliminary injunctive relief requiring CHH to issue 17.9 million shares of its common stock to trustees who, pending a trial on the merits, would be required to vote such shares in the same proportion as the votes of unaffiliated shareholders. This matter therefore is not moot

2For additional discussion of the concerns giving rise to the Williams Act amendments, see Full Disclosure of Corporate Equity Ownership and in Corporate Takeover Bids: Hearing on S. 510 Before the Subcommittee on Securities of the Senate Committee on Banking and Currency, 90th Cong., 1st Sess. (1967) ("Senate Hearings"); Takeover Bids: Hearing on H.R. 14475, and S. 510 Before the Subcommittee on Commerce and Finance of the House Committee on Interstate and Foreign Commerce, 90th Cong., 2d Sess. (1968) ("House Hearings")

3The procedural and substantive requirements that must be complied with under Rule 13e-4 differ from those under Rule 13e-1. An issuer engaged in a repurchase under Rule 13e-1 is required to file a brief statement with the SEC setting forth the amount of shares purchased; the purpose for which the purchase is made; and the source and amount of funds used in making the repurchase. 17 C.F.R. Sec. 240.13e-1 (1984). CHH complied with the requirements of Rule 13e-1

An issuer engaged in a tender offer under Rule 13e-4 must comply with more burdensome regulations. All the substantive and procedural protections for shareholders come into play under Rule 13e-4 including: full disclosure; time in which to make investment decisions; withdrawal rights; and requirements for pro rata of shares. 17 C.F.R. Sec. 240.13e-4 (1984). CHH did not comply with Rule 13e-4.

4We have followed the Wellman test in another context, see Polinsky v. MCA, Inc., 680 F.2d 1286, 1290-91 (9th Cir.1982) (open market purchases made in anticipation of a tender offer met none of the Wellman indicia), but have not addressed the question of the applicability of the Wellman factors to issuer repurchase programs during third-party tender offers

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5Some courts have opted for the broader S-G Securities definition of a tender offer, see, e.g., Panter v. Marshall Field & Co., 646 F.2d at 286 (also citing Wellman); Hoover Co. v. Fuqua Industries, [1979-80] Fed.Sec.L.Rptr. (CCH) p 97,107 at 96,146-149 (also citing Wellman); Nachman Corp. v. Halfred, Inc., [1973-74] Fed.Sec.L.Rptr. (CCH) p 94,455 at 95,590 (N.D.Ill.1973); Cattlemen's Investment Co. v. Fears, 343 F.Supp. 1248, 1251 (W.D.Okla.1972), vacated per stipulation, No. 75-152 (W.D.Okla. May 8, 1972), while other courts have rejected this broad test in favor of the eight-factor Wellman test. See, e.g., Kennecott Copper Corp. v. Curtiss-Wright Corp., 584 F.2d at 1207; LTV Corp. v. Grumman Corp., 527 F.Supp. at 109; Brascan Ltd. v. Edper Equities Ltd., 477 F.Supp. at 791; D-Z Investment Co. v. Holloway, [1974-75] Fed.Sec.L.Rep. (CCH) p 94,771 at 96,562-63 (S.D.N.Y.1974). There is no one factor other than the result which distinguishes these cases although the greater weight of authority seems to have accepted the Wellman test

九、内幕交易《最高人民法院、最高人民检察院关于办理内幕交易、泄露内幕信息刑事案件

具体应用法律若干问题的解释》已于 2011年 10 月 31 日由最高人民法院审判委员会第 1529次会议、2012年 2 月 27 日由最高人民检察院第十一届检察委员会第 72次会议通过，现予公布，自 2012年 6 月 1 日起施行。二○一二年三月二十九日法释〔2012〕6号最高人民法院、最高人民检察院关于办理内幕交易、泄露内幕信息刑事案件

具体应用法律若干问题的解释（2011年 10 月 31 日最高人民法院审判委员会第 1529次会议、2012年

2 月 27 日最高人民检察院第十一届检察委员会第 72次会议通过）

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为维护证券、期货市场管理秩序，依法惩治证券、期货犯罪，根据刑法有关规定，现就办理内幕交易、泄露内幕信息刑事案件具体应用法律的若干问题解释如下：第一条 下列人员应当认定为刑法第一百八十条第一款规定的“证券、期货

交易内幕信息的知情人员”：（一）证券法第七十四条规定的人员；（二）期货交易管理条例第八十五条第十二项规定的人员。第二条 具有下列行为的人员应当认定为刑法第一百八十条第一款规定的

“非法获取证券、期货交易内幕信息的人员”：（一）利用窃取、骗取、套取、窃听、利诱、刺探或者私下交易等手段获取内

幕信息的；（二）内幕信息知情人员的近亲属或者其他与内幕信息知情人员关系密切

的人员，在内幕信息敏感期内，从事或者明示、暗示他人从事，或者泄露内幕信息导致他人从事与该内幕信息有关的证券、期货交易，相关交易行为明显异常，且无正当理由或者正当信息来源的；（三）在内幕信息敏感期内，与内幕信息知情人员联络、接触，从事或者明

示、暗示他人从事，或者泄露内幕信息导致他人从事与该内幕信息有关的证券、期货交易，相关交易行为明显异常，且无正当理由或者正当信息来源的。第三条 本解释第二条第二项、第三项规定的“相关交易行为明显异常”，

要综合以下情形，从时间吻合程度、交易背离程度和利益关联程度等方面予以认定：

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（一）开户、销户、激活资金账户或者指定交易（托管）、撤销指定交易（转托管）的时间与该内幕信息形成、变化、公开时间基本一致的；（二）资金变化与该内幕信息形成、变化、公开时间基本一致的；（三）买入或者卖出与内幕信息有关的证券、期货合约时间与内幕信息的形

成、变化和公开时间基本一致的；（四）买入或者卖出与内幕信息有关的证券、期货合约时间与获悉内幕信息

的时间基本一致的；（五）买入或者卖出证券、期货合约行为明显与平时交易习惯不同的；（六）买入或者卖出证券、期货合约行为，或者集中持有证券、期货合约行

为与该证券、期货公开信息反映的基本面明显背离的；（七）账户交易资金进出与该内幕信息知情人员或者非法获取人员有关联

或者利害关系的；（八）其他交易行为明显异常情形。第四条 具有下列情形之一的，不属于刑法第一百八十条第一款规定的从事

与内幕信息有关的证券、期货交易：（一）持有或者通过协议、其他安排与他人共同持有上市公司百分之五以上

股份的自然人、法人或者其他组织收购该上市公司股份的；（二）按照事先订立的书面合同、指令、计划从事相关证券、期货交易的；（三）依据已被他人披露的信息而交易的；（四）交易具有其他正当理由或者正当信息来源的。第五条 本解释所称“内幕信息敏感期”是指内幕信息自形成至公开的期间。

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证券法第六十七条第二款所列“重大事件”的发生时间，第七十五条规定的“计划”、“方案”以及期货交易管理条例第八十五条第十一项规定的“政策”、“决定”等的形成时间，应当认定为内幕信息的形成之时。

影响内幕信息形成的动议、筹划、决策或者执行人员，其动议、筹划、决策或者执行初始时间，应当认定为内幕信息的形成之时。内幕信息的公开，是指内幕信息在国务院证券、期货监督管理机构指定的报

刊、网站等媒体披露。第六条 在内幕信息敏感期内从事或者明示、暗示他人从事或者泄露内幕信

息导致他人从事与该内幕信息有关的证券、期货交易，具有下列情形之一的，应当认定为刑法第一百八十条第一款规定的“情节严重”：（一）证券交易成交额在五十万元以上的；（二）期货交易占用保证金数额在三十万元以上的；（三）获利或者避免损失数额在十五万元以上的；（四）三次以上的；（五）具有其他严重情节的。第七条 在内幕信息敏感期内从事或者明示、暗示他人从事或者泄露内幕信

息导致他人从事与该内幕信息有关的证券、期货交易，具有下列情形之一的，应当认定为刑法第一百八十条第一款规定的“情节特别严重”：（一）证券交易成交额在二百五十万元以上的；（二）期货交易占用保证金数额在一百五十万元以上的；（三）获利或者避免损失数额在七十五万元以上的；（四）具有其他特别严重情节的。

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第八条 二次以上实施内幕交易或者泄露内幕信息行为，未经行政处理或者刑事处理的，应当对相关交易数额依法累计计算。第九条 同一案件中，成交额、占用保证金额、获利或者避免损失额分别构成

情节严重、情节特别严重的，按照处罚较重的数额定罪处罚。构成共同犯罪的，按照共同犯罪行为人的成交总额、占用保证金总额、获利

或者避免损失总额定罪处罚，但判处各被告人罚金的总额应掌握在获利或者避免损失总额的一倍以上五倍以下。第十条 刑法第一百八十条第一款规定的“违法所得”，是指通过内幕交易

行为所获利益或者避免的损失。内幕信息的泄露人员或者内幕交易的明示、暗示人员未实际从事内幕交易的

其罚金数额按照因泄露而获悉内幕信息人员或者被明示、暗示人员从事内幕交易的违法所得计算。第十一条 单位实施刑法第一百八十条第一款规定的行为，具有本解释第六

条规定情形之一的，按照刑法第一百八十条第二款的规定定罪处罚。

UNITED STATES v. NEWMAN

Nos. 13–1837–cr (L), 13–1917–cr (con).

Decided: December 10, 2014

Defendants-appellants Todd Newman and Anthony Chiasson appeal from judgments of conviction entered on May 9, 2013, and May 14, 2013, respectively in the United States District Court for the Southern District of New York (Richard J. Sullivan, J.) following a six-week jury trial on charges of securities fraud in violation of sections 10(b) and 32 of the Securities Exchange Act of 1934 (the “1934 Act”), 48 Stat. 891, 904 (codified as amended at 15 U.S.C. §§ 78j(b), 78ff), Securities and Exchange Commission (SEC) Rules 10b–5 and 10b5–2 (codified at 17 C.F.R. §§ 240.10b–5,

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240.10b5–2), and 18 U.S.C. § 2, and conspiracy to commit securities fraud in violation of 18 U.S.C. § 371.The Government alleged that a cohort of analysts at various hedge funds and investment firms obtained material, nonpublic information from employees of publicly traded technology companies, shared it amongst each other, and subsequently passed this information to the portfolio managers at their respective companies. The Government charged Newman, a portfolio manager at Diamondback Capital Management, LLC (“Diamondback”), and Chiasson, a portfolio manager at Level Global Investors, L.P. (“Level Global”), with willfully participating in this insider trading scheme by trading in securities based on the inside information illicitly obtained by this group of analysts. On appeal, Newman and Chiasson challenge the sufficiency of the evidence as to several elements of the offense, and further argue that the district court erred in failing to instruct the jury that it must find that a tippee knew that the insider disclosed confidential information in exchange for a personal benefit.We agree that the jury instruction was erroneous because we conclude that, in order to sustain a conviction for insider trading, the Government must prove beyond a reasonable doubt that the tippee knew that an insider disclosed confidential information and that he did so in exchange for a personal benefit. Moreover, we hold that the evidence was insufficient to sustain a guilty verdict against Newman and Chiasson for two reasons. First, the Government's evidence of any personal benefit received by the alleged insiders was insufficient to establish the tipper liability from which defendants' purported tippee liability would derive. Second, even assuming that the scant evidence offered on the issue of personal benefit was sufficient, which we conclude it was not, the Government presented no evidence that Newman and Chiasson knew that they were trading on information obtained from insiders in violation of those insiders' fiduciary duties.Accordingly, we reverse the convictions of Newman and Chiasson on all counts and remand with instructions to dismiss the indictment as it pertains to them with prejudice.BACKGROUNDThis case arises from the Government's ongoing investigation into suspected insider trading activity at hedge funds. On January 18, 2012, the Government unsealed charges against Newman, Chiasson, and several other investment professionals. On February 7, 2012, a grand jury returned an indictment. On August 28, 2012, a twelve-count Superseding Indictment S2 12 Cr. 121(RJS) (the “Indictment”) was filed. Count One of the Indictment charged Newman, Chiasson, and a co-defendant with conspiracy to commit securities fraud, in violation of 18 U.S.C. § 371. Each of Counts Two through Five charged Newman and each of Counts Six through Ten charged Chiasson with securities fraud, in violation of sections 10(b) and 32 of the 1934 Act, SEC Rules 10b–5 and 105b–2, and 18 U.S .C. § 2. A co-defendant was charged with securities fraud in Counts Eleven and Twelve.At trial, the Government presented evidence that a group of financial analysts exchanged information they obtained from company insiders, both directly and more

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often indirectly. Specifically, the Government alleged that these analysts received information from insiders at Dell and NVIDIA disclosing those companies' earnings numbers before they were publicly released in Dell's May 2008 and August 2008 earnings announcements and NVIDIA's May 2008 earnings announcement. These analysts then passed the inside information to their portfolio managers, including Newman and Chiasson, who, in turn, executed trades in Dell and NVIDIA stock, earning approximately $4 million and $68 million, respectively, in profits for their respective funds.Newman and Chiasson were several steps removed from the corporate insiders and there was no evidence that either was aware of the source of the inside information. With respect to the Dell tipping chain, the evidence established that Rob Ray of Dell's investor relations department tipped information regarding Dell's consolidated earnings numbers to Sandy Goyal, an analyst at Neuberger Berman. Goyal in turn gave the information to Diamondback analyst Jesse Tortora. Tortora in turn relayed the information to his manager Newman as well as to other analysts including Level Global analyst Spyridon “Sam” Adondakis. Adondakis then passed along the Dell information to Chiasson, making Newman and Chiasson three and four levels removed from the inside tipper, respectively.With respect to the NVIDIA tipping chain, the evidence established that Chris Choi of NVIDIA's finance unit tipped inside information to Hyung Lim, a former executive at technology companies Broadcom Corp. and Altera Corp., whom Choi knew from church. Lim passed the information to co-defendant Danny Kuo, an analyst at Whittier Trust. Kuo circulated the information to the group of analyst friends, including Tortora and Adondakis, who in turn gave the information to Newman and Chiasson, making Newman and Chiasson four levels removed from the inside tippers.Although Ray and Choi have yet to be charged administratively, civilly, or criminally for insider trading or any other wrongdoing, the Government charged that Newman and Chiasson were criminally liable for insider trading because, as sophisticated traders, they must have known that information was disclosed by insiders in breach of a fiduciary duty, and not for any legitimate corporate purpose.At the close of evidence, Newman and Chiasson moved for a judgment of acquittal pursuant to Federal Rule of Criminal Procedure 29. They argued that there was no evidence that the corporate insiders provided inside information in exchange for a personal benefit which is required to establish tipper liability under Dirks v. S.E.C., 463 U.S. 646 (1983). Because a tippee's liability derives from the liability of the tipper, Newman and Chiasson argued that they could not be found guilty of insider trading. Newman and Chiasson also argued that, even if the corporate insiders had received a personal benefit in exchange for the inside information, there was no evidence that they knew about any such benefit. Absent such knowledge, appellants argued, they were not aware of, or participants in, the tippers' fraudulent breaches of fiduciary duties to Dell or NVIDIA, and could not be convicted of insider trading under Dirks. In the alternative, appellants requested that the court instruct the jury that it must find that Newman and Chiasson knew that the corporate insiders had disclosed confidential information for personal benefit in order to find them guilty.

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The district court reserved decision on the Rule 29 motions. With respect to the appellants' requested jury charge, while the district court acknowledged that their position was “supportable certainly by the language of Dirks,” Tr. 3595:10–12, it ultimately found that it was constrained by this Court's decision in S.E.C. v. Obus, 693 F.3d 276 (2d Cir.2012), which listed the elements of tippee liability without enumerating knowledge of a personal benefit received by the insider as a separate element. Tr. 3604:3–3605:5. Accordingly, the district court did not give Newman and Chiasson's proposed jury instruction. Instead, the district court gave the following instructions on the tippers' intent and the personal benefit requirement:Now, if you find that Mr. Ray and/or Mr. Choi had a fiduciary or other relationship of trust and confidence with their employers, then you must next consider whether the [G]overnment has proven beyond a reasonable doubt that they intentionally breached that duty of trust and confidence by disclosing material[,] nonpublic information for their own benefit.Tr. 4030.On the issue of the appellants' knowledge, the district court instructed the jury:To meet its burden, the [G]overnment must also prove beyond a reasonable doubt that the defendant you are considering knew that the material, nonpublic information had been disclosed by the insider in breach of a duty of trust and confidence. The mere receipt of material, nonpublic information by a defendant, and even trading on that information, is not sufficient; he must have known that it was originally disclosed by the insider in violation of a duty of confidentiality.Tr. 4033:14–22.On December 17, 2012, the jury returned a verdict of guilty on all counts. The district court subsequently denied the appellants' Rule 29 motions.On May 2, 2013, the district court sentenced Newman to an aggregate term of 54 months' imprisonment, to be followed by one year of supervised release, imposed a $500 mandatory special assessment, and ordered Newman to pay a $1 million fine and to forfeit $737,724. On May 13, 2013, the district court sentenced Chiasson to an aggregate term of 78 months' imprisonment, to be followed by one year of supervised release, imposed a $600 mandatory special assessment, and ordered him to pay a $5 million fine and forfeiture in an amount not to exceed $2 million.2 This appeal followed.DISCUSSIONNewman and Chiasson raise a number of arguments on appeal. Because we conclude that the jury instructions were erroneous and that there was insufficient evidence to support the convictions, we address only the arguments relevant to these issues. We review jury instructions de novo with regard to whether the jury was misled or inadequately informed about the applicable law. See United States v. Moran–Toala, 726 F.3d 334, 344 (2d Cir.2013).I. The Law of Insider TradingSection 10(b) of the 1934 Act, 15 U.S.C. § 78j(b), prohibits the use “in connection with the purchase or sale of any security [of] any manipulative or deceptive device ․or contrivance in contravention of such rules and regulations as the Commission may

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prescribe ” Although Section 10(b) was designed as a catch-all clause to prevent ․fraudulent practices, Ernst & Ernst v. Hochfelder, 425 U.S. 185, 202–06 (1976), neither the statute nor the regulations issued pursuant to it, including Rule 10b–5, expressly prohibit insider trading. Rather, the unlawfulness of insider trading is predicated on the notion that insider trading is a type of securities fraud proscribed by Section 10(b) and Rule 10b–5. See Chiarella v. United States, 445 U.S. 222, 226–30 (1980).A. The “Classical” and “Misappropriation” Theories of Insider TradingThe classical theory holds that a corporate insider (such as an officer or director) violates Section 10(b) and Rule 10b–5 by trading in the corporation's securities on the basis of material, nonpublic information about the corporation. Id. at 230. Under this theory, there is a special “relationship of trust and confidence between the shareholders of a corporation and those insiders who have obtained confidential information by reason of their position within that corporation.” Id. at 228. As a result of this relationship, corporate insiders that possess material, nonpublic information have “a duty to disclose [or to abstain from trading] because of the ‘necessity of preventing a corporate insider from tak[ing] unfair advantage of uninformed ․ ․ ․stockholders.’ “ Id. at 228–29 (citation omitted).In accepting this theory of insider trading, the Supreme Court explicitly rejected the notion of “a general duty between all participants in market transactions to forgo actions based on material, nonpublic information.” Id. at 233. Instead, the Court limited the scope of insider trading liability to situations where the insider had “a duty to disclose arising from a relationship of trust and confidence between parties to a transaction,” such as that between corporate officers and shareholders. Id. at 230.An alternative, but overlapping, theory of insider trading liability, commonly called the “misappropriation” theory, expands the scope of insider trading liability to certain other “outsiders,” who do not have any fiduciary or other relationship to a corporation or its shareholders. Liability may attach where an “outsider” possesses material non-public information about a corporation and another person uses that information to trade in breach of a duty owed to the owner. United States v. O'Hagan, 521 U.S. 642, 652–53 (1997); United States v. Libera, 989 F.2d 596, 599–600 (2d Cir.1993). In other words, such conduct violates Section 10(b) because the misappropriator engages in deception by pretending “loyalty to the principal while secretly converting the principal's information for personal gain.” Obus, 693 F.3d at 285 (citations omitted).B. Tipping LiabilityThe insider trading case law, however, is not confined to insiders or misappropriators who trade for their own accounts. Id . at 285. Courts have expanded insider trading liability to reach situations where the insider or misappropriator in possession of material nonpublic information (the “tipper”) does not himself trade but discloses the information to an outsider (a “tippee”) who then trades on the basis of the information before it is publicly disclosed. See Dirks, 463 U.S. at 659. The elements of tipping liability are the same, regardless of whether the tipper's duty arises under the “classical” or the “misappropriation” theory. Obus, 693 F.3d at 28586.

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In Dirks, the Supreme Court addressed the liability of a tippee analyst who received material, nonpublic information about possible fraud at an insurance company from one of the insurance company's former officers. Dirks, 463 U.S. at 648–49. The analyst relayed the information to some of his clients who were investors in the insurance company, and some of them, in turn, sold their shares based on the analyst's tip. Id. The SEC charged the analyst Dirks with aiding and abetting securities fraud by relaying confidential and material inside information to people who traded the stock.In reviewing the appeal, the Court articulated the general principle of tipping liability: “Not only are insiders forbidden by their fiduciary relationship from personally using undisclosed corporate information to their advantage, but they may not give such information to an outsider for the same improper purpose of exploiting the information for their personal gain.” Id. at 659 (citation omitted). The test for determining whether the corporate insider has breached his fiduciary duty “is whether the insider personally will benefit, directly or indirectly, from his disclosure. Absent some personal gain, there has been no breach of duty ” Id. at 662 (emphasis added).․The Supreme Court rejected the SEC's theory that a recipient of confidential information (i.e. the “tippee”) must refrain from trading “whenever he receives inside information from an insider.” Id. at 655. Instead, the Court held that “[t]he tippee's duty to disclose or abstain is derivative from that of the insider's duty .” Id. at 659. Because the tipper's breach of fiduciary duty requires that he “personally will benefit, directly or indirectly, from his disclosure,” id. at 662, a tippee may not be held liable in the absence of such benefit. Moreover, the Supreme Court held that a tippee may be found liable “only when the insider has breached his fiduciary duty and the tippee․ knows or should know that there has been a breach.” Id. at 660 (emphasis added). In Dirks, the corporate insider provided the confidential information in order to expose a fraud in the company and not for any personal benefit, and thus, the Court found that the insider had not breached his duty to the company's shareholders and that Dirks could not be held liable as tippee.E. Mens ReaLiability for securities fraud also requires proof that the defendant acted with scienter, which is defined as “a mental state embracing intent to deceive, manipulate or defraud.” Hochfelder, 425 U.S. at 193 n. 12. In order to establish a criminal violation of the securities laws, the Government must show that the defendant acted “willfully.” 15 U.S.C. § 78ff(a). We have defined willfulness in this context “as a realization on the defendant's part that he was doing a wrongful act under the securities laws.” United States v. Cassese, 428 F.3d 92, 98 (2d Cir.2005) (internal quotation marks and citations omitted); see also United States v. Dixon, 536 F.2d 1388, 1395 (2d Cir.1976) (holding that to establish willfulness, the Government must “establish a realization on the defendant's part that he was doing a wrongful act under the securities laws” and ․that such an act “involve[d] a significant risk of effecting the violation that occurred.”) (quotation omitted).II. The Requirements of Tippee LiabilityThe Government concedes that tippee liability requires proof of a personal benefit to the insider. Gov't Br. 56. However, the Government argues that it was not required to

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prove that Newman and Chiasson knew that the insiders at Dell and NVIDIA received a personal benefit in order to be found guilty of insider trading. Instead, the Government contends, consistent with the district court's instruction, that it merely needed to prove that the “defendants traded on material, nonpublic information they knew insiders had disclosed in breach of a duty of confidentiality ” Gov't Br. 58.․In support of this position, the Government cites Dirks for the proposition that the Supreme Court only required that the “tippee know that the tipper disclosed information in breach of a duty.” Id. at 40 (citing Dirks, 463 U.S. at 660) (emphasis added). In addition, the Government relies on dicta in a number of our decisions post-Dirks, in which we have described the elements of tippee liability without specifically stating that the Government must prove that the tippee knew that the corporate insider who disclosed confidential information did so for his own personal benefit. Id. at 41–44 (citing, inter alia, United States v. Jiau, 734 F.3d 147, 152–53 (2d Cir.2013); Obus, 693 F.3d at 289; S.E.C. v. Warde, 151 F.3d 42, 48–49 (2d Cir.1998)). By selectively parsing this dictum, the Government seeks to revive the absolute bar on tippee trading that the Supreme Court explicitly rejected in Dirks.Although this Court has been accused of being “somewhat Delphic” in our discussion of what is required to demonstrate tippee liability, United States v. Whitman, 904 F.Supp.2d 363, 371 n. 6 (S.D.N.Y.2012), the Supreme Court was quite clear in Dirks. First, the tippee's liability derives only from the tipper's breach of a fiduciary duty, not from trading on material, non-public information. See Chiarella, 445 U.S. at 233 (noting that there is no “general duty between all participants in market transactions to forgo actions based on material, nonpublic information”). Second, the corporate insider has committed no breach of fiduciary duty unless he receives a personal benefit in exchange for the disclosure. Third, even in the presence of a tipper's breach, a tippee is liable only if he knows or should have known of the breach.While we have not yet been presented with the question of whether the tippee's knowledge of a tipper's breach requires knowledge of the tipper's personal benefit, the answer follows naturally from Dirks. Dirks counsels us that the exchange of confidential information for personal benefit is not separate from an insider's fiduciary breach; it is the fiduciary breach that triggers liability for securities fraud under Rule 10b–5. For purposes of insider trading liability, the insider's disclosure of confidential information, standing alone, is not a breach. Thus, without establishing that the tippee knows of the personal benefit received by the insider in exchange for the disclosure, the Government cannot meet its burden of showing that the tippee knew of a breach.The Government's overreliance on our prior dicta merely highlights the doctrinal novelty of its recent insider trading prosecutions, which are increasingly targeted at remote tippees many levels removed from corporate insiders. By contrast, our prior cases generally involved tippees who directly participated in the tipper's breach (and therefore had knowledge of the tipper's disclosure for personal benefit) or tippees who were explicitly apprised of the tipper's gain by an intermediary tippee. See, e.g ., Jiau, 734 F.3d at 150 (“To provide an incentive, Jiau promised the tippers insider information for their own private trading.”); United States v. Falcone, 257 F.3d 226, 235 (2d Cir.2001) (affirming conviction of remote tipper where intermediary tippee

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paid the inside tipper and had told remote tippee “the details of the scheme”); Warde, 151 F.3d at 49 (tipper and tippee engaged in parallel trading of the inside information and “discussed not only the inside information, but also the best way to profit from it”); United States v. Mylett, 97 F.3d 663 (2d Cir.1996) (tippee acquired inside information directly from his insider friend). We note that the Government has not cited, nor have we found, a single case in which tippees as remote as Newman and Chiasson have been held criminally liable for insider trading.Jiau illustrates the importance of this distinction quite clearly. In Jiau, the panel was presented with the question of whether the evidence at trial was sufficient to prove that the tippers personally benefitted from their disclosure of insider information. In that context, we summarized the elements of criminal liability as follows:(1) the insider-tippers were entrusted the duty to protect confidential information, ․which (2) they breached by disclosing [the information] to their tippee , who (3) ․knew of [the tippers'] duty and (4) still used the information to trade a security or further tip the information for [the tippee's] benefit, and finally (5) the insider-tippers benefited in some way from their disclosure.Jiau, 734 F.3d at 152–53 (citing Dirks, 463 U.S. at 659–64; Obus, 693 F.3d at 289). The Government relies on this language to argue that Jiau is merely the most recent in a string of cases in which this Court has found that a tippee, in order to be criminally liable for insider trading, need know only that an insider-tipper disclosed information in breach of a duty ofconfidentiality. Gov't Br. 43. However, we reject the Government's position that our cursory recitation of the elements in Jiau suggests that criminal liability may be imposed on a defendant based only on knowledge of a breach of a duty of confidentiality. In Jiau, the defendant knew about the benefit because she provided it. For that reason, we had no need to reach the question of whether knowledge of a breach requires that a tippee know that a personal benefit was provided to the tipper.In light of Dirks, we find no support for the Government's contention that knowledge of a breach of the duty of confidentiality without knowledge of the personal benefit is sufficient to impose criminal liability. Although the Government might like the law to be different, nothing in the law requires a symmetry of information in the nation's securities markets. The Supreme Court explicitly repudiated this premise not only in Dirks, but in a predecessor case, Chiarella v. United States. In Chiarella, the Supreme Court rejected this Circuit's conclusion that “the federal securities laws have created a system providing equal access to information necessary for reasoned and intelligent investment decisions because [material non-public] information gives certain buyers ․or sellers an unfair advantage over less informed buyers and sellers.” 445 U.S. at 232. The Supreme Court emphasized that “[t]his reasoning suffers from [a] defect ․[because] not every instance of financial unfairness constitutes fraudulent activity under § 10(b).” Id. See also United States v. Chestman, 947 F.2d 551, 578 (2d Cir.1991) (Winter, J., concurring) (“[The policy rationale [for prohibiting insider trading] stops well short of prohibiting all trading on material nonpublic information. Efficient capital markets depend on the protection of property rights in information. However, they also require that persons who acquire and act on information about

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companies be able to profit from the information they generate ”). Thus, in both ․Chiarella and Dirks, the Supreme Court affirmatively established that insider trading liability is based on breaches of fiduciary duty, not on informational asymmetries. This is a critical limitation on insider trading liability that protects a corporation's interests in confidentiality while promoting efficiency in the nation's securities markets.As noted above, Dirks clearly defines a breach of fiduciary duty as a breach of the duty of confidentiality in exchange for a personal benefit. See Dirks, 463 U.S. at 662. Accordingly, we conclude that a tippee's knowledge of the insider's breach necessarily requires knowledge that the insider disclosed confidential information in exchange for personal benefit. In reaching this conclusion, we join every other district court to our knowledge—apart from Judge Sullivan3 —that has confronted this question. Compare United States v. Rengan Rajaratnam, No. 13–211 (S.D.N.Y. July 1, 2014) (Buchwald, J.); United States v. Martoma, No. 12–973 (S.D.N.Y. Feb. 4, 2014) (Gardephe, J.); United States v. Whitman, 904 F.Supp.2d 363, 371 (S.D.N.Y.2012) (Rakoff, J.); United States v. Raj Rajaratnam, 802 F.Supp.2d 491, 499 (S.D.N.Y.2011) (Holwell, J.); State Teachers Retirement Bd. v. Fluor Corp., 592 F.Supp. 592, 594 (S.D.N.Y.1984) (Sweet, J.),4 with United States v. Steinberg, No. 12–121, 2014 WL 2011685 at *5 (S.D.N.Y. May 15, 2014) (Sullivan, J.), and United States v. Newman, No. 12–121 (S.D.N.Y. Dec. 6, 2012) (Sullivan, J.).5 Our conclusion also comports with well-settled principles of substantive criminal law. As the Supreme Court explained in Staples v. United States, 511 U.S. 600, 605 (1994), under the common law, mens rea, which requires that the defendant know the facts that make his conduct illegal, is a necessary element in every crime. Such a requirement is particularly appropriate in insider trading cases where we have acknowledged “it is easy to imagine a trader who receives a tip and is unaware that ․his conduct was illegal and therefore wrongful.” United States v. Kaiser, 609 F.3d 556, 569 (2d Cir.2010). This is also a statutory requirement, because only “willful” violations are subject to criminal provision. See United States v. Temple, 447 F.3d 130, 137 (2d Cir.2006) (“ ‘Willful’ repeatedly has been defined in the criminal context as intentional, purposeful, and voluntary, as distinguished from accidental or negligent”).In sum, we hold that to sustain an insider trading conviction against a tippee, the Government must prove each of the following elements beyond a reasonable doubt: that (1) the corporate insider was entrusted with a fiduciary duty; (2) the corporate insider breached his fiduciary duty by (a) disclosing confidential information to a tippee (b) in exchange for a personal benefit; (3) the tippee knew of the tipper's breach, that is, he knew the information was confidential and divulged for personal benefit; and (4) the tippee still used that information to trade in a security or tip another individual for personal benefit. See Jiau, 734 F.3d at 152–53; Dirks, 463 U.S. at 659–64.In view of this conclusion, we find, reviewing the charge as a whole, United States v. Mitchell, 328 F.3d 77, 82 (2d Cir.2003), that the district court's instruction failed to accurately advise the jury of the law. The district court charged the jury that the

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Government had to prove: (1) that the insiders had a “fiduciary or other relationship of trust and confidence” with their corporations; (2) that they “breached that duty of trust and confidence by disclosing material, nonpublic information”; (3) that they “personally benefited in some way” from the disclosure; (4) “that the defendant ․knew the information he obtained had been disclosed in breach of a duty”; and (5) that the defendant used the information to purchase a security. Under these instructions, a reasonable juror might have concluded that a defendant could be criminally liable for insider trading merely if such defendant knew that an insider had divulged information that was required to be kept confidential. But a breach of the duty of confidentiality is not fraudulent unless the tipper acts for personal benefit, that is to say, there is no breach unless the tipper “is in effect selling the information to its recipient for cash, reciprocal information, or other things of value for himself ” Dirks,․ 463 U.S. at 664 (quotation omitted). Thus, the district court was required to instruct the jury that the Government had to prove beyond a reasonable doubt that Newman and Chiasson knew that the tippers received a personal benefit for their disclosure.The Government argues that any possible instructional error was harmless because the jury could have found that Newman and Chiasson inferred from the circumstances that some benefit was provided to (or anticipated by) the insiders. Gov't Br. 60. We disagree.An instructional error is harmless only if the Government demonstrates that it is “clear beyond a reasonable doubt that a rational jury would have found the defendant guilty absent the error[.]” Neder v. United States, 527 U.S. 1, 17–18 (1999); accord Moran–Toala, 726 F.3d at 345; United States v. Quattrone, 441 F.3d 153, 180 (2d Cir.2006). The harmless error inquiry requires us to view whether the evidence introduced was “uncontested and supported by overwhelming evidence” such that it is “clear beyond a reasonable doubt that a rational jury would have found the defendant guilty absent the error.” Neder, 527 U.S. at 18. Here both Chiasson and Newman contested their knowledge of any benefit received by the tippers and, in fact, elicited evidence sufficient to support a contrary finding. Moreover, we conclude that the Government's evidence of any personal benefit received by the insiders was insufficient to establish tipper liability from which Chiasson and Newman's purported tippee liability would derive.III. Insufficiency of the EvidenceAs a general matter, a defendant challenging the sufficiency of the evidence bears a heavy burden, as the standard of review is exceedingly deferential. United States v. Coplan, 703 F.3d 46, 62 (2d Cir.2012). Specifically, we “must view the evidence in the light most favorable to the Government, crediting every inference that could have been drawn in the Government's favor, and deferring to the jury's assessment of witness credibility and its assessment of the weight of the evidence.” Id. (citing United States v. Chavez, 549 F.3d 119, 124 (2d Cir.2008)). Although sufficiency review is de novo, we will uphold the judgments of conviction if “any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt.” Id. (citing United States v. Yannotti, 541 F.3d 112, 120 (2d Cir.2008) (emphasis omitted); Jackson v. Virginia, 443 U.S. 307, 319 (1979)). This standard of review

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draws no distinction between direct and circumstantial evidence. The Government is entitled to prove its case solely through circumstantial evidence, provided, of course, that the Government still demonstrates each element of the charged offense beyond a reasonable doubt. United States v. Lorenzo, 534 F.3d 153, 159 (2d Cir.2008).However, if the evidence “is nonexistent or so meager,” United States v. Guadagna, 183 F.3d 122, 130 (2d Cir.1999), such that it “gives equal or nearly equal circumstantial support to a theory of guilt and a theory of innocence, then a reasonable jury must necessarily entertain a reasonable doubt,” Cassese, 428 F.3d at 99. Because few events in the life of an individual are more important than a criminal conviction, we continue to consider the “beyond a reasonable doubt” requirement with utmost seriousness. Cassese, 428 F.3d at 102. Here, we find that the Government's evidence failed to reach that threshold, even when viewed in the light most favorable to it.The circumstantial evidence in this case was simply too thin to warrant the inference that the corporate insiders received any personal benefit in exchange for their tips. As to the Dell tips, the Government established that Goyal and Ray were not “close” friends, but had known each other for years, having both attended business school and worked at Dell together. Further, Ray, who wanted to become a Wall Street analyst like Goyal, sought career advice and assistance from Goyal. The evidence further showed that Goyal advised Ray on a range of topics, from discussing the qualifying examination in order to become a financial analyst to editing Ray's résumé and sending it to a Wall Street recruiter, and that some of this assistance began before Ray began to provide tips about Dell's earnings. The evidence also established that Lim and Choi were “family friends” that had met through church and occasionally socialized together. The Government argues that these facts were sufficient to prove that the tippers derived some benefit from the tip. We disagree. If this was a “benefit,” practically anything would qualify.We have observed that “[p]ersonal benefit is broadly defined to include not only pecuniary gain, but also, inter alia, any reputational benefit that will translate into future earnings and the benefit one would obtain from simply making a gift of confidential information to a trading relative or friend.” Jiau, 734 F.3d at 153 (internal citations, alterations, and quotation marks deleted). This standard, although permissive, does not suggest that the Government may prove the receipt of a personal benefit by the mere fact of a friendship, particularly of a casual or social nature. If that were true, and the Government was allowed to meet its burden by proving that two individuals were alumni of the same school or attended the same church, the personal benefit requirement would be a nullity. To the extent Dirks suggests that a personal benefit may be inferred from a personal relationship between the tipper and tippee, where the tippee's trades “resemble trading by the insider himself followed by a gift of the profits to the recipient,” see 643 U.S. at 664, we hold that such an inference is impermissible in the absence of proof of a meaningfully close personal relationship that generates an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature. In other words, as Judge Walker noted in Jiau, this requires evidence of “a relationship between the insider and

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the recipient that suggests a quid pro quo from the latter, or an intention to benefit the [latter].” Jiau, 734 F.3d at 153.While our case law at times emphasizes language from Dirks indicating that the tipper's gain need not be immediately pecuniary, it does not erode the fundamental insight that, in order to form the basis for a fraudulent breach, the personal benefit received in exchange for confidential information must be of some consequence. For example, in Jiau, we noted that at least one of the corporate insiders received something more than the ephemeral benefit of the “value[ ][of] [Jiau's] friendship” because he also obtained access to an investment club where stock tips and insight were routinely discussed. Id. Thus, by joining the investment club, the tipper entered into a relationship of quid quo pro with Jiau, and therefore had the opportunity to access information that could yield future pecuniary gain. Id; see also SEC v. Yun, 327 F.3d 1263, 1280 (11th Cir.2003) (finding evidence of personal benefit where tipper and tippee worked closely together in real estate deals and commonly split commissions on various real estate transactions); SEC v. Sargent, 229 F.3d 68, 77 (1st Cir.2000) (finding evidence of personal benefit when the tipper passed information to a friend who referred others to the tipper for dental work).Here the “career advice” that Goyal gave Ray, the Dell tipper, was little more than the encouragement one would generally expect of a fellow alumnus or casual acquaintance. See, e.g., J.A.2080 (offering “minor suggestions” on a resume), J.A.2082 (offering advice prior to an informational interview). Crucially, Goyal testified that he would have given Ray advice without receiving information because he routinely did so for industry colleagues. Although the Government argues that the jury could have reasonably inferred from the evidence that Ray and Goyal swapped career advice for inside information, Ray himself disavowed that any such quid pro quo existed. Further, the evidence showed Goyal began giving Ray “career advice” over a year before Ray began providing any insider information. Tr. 1514. Thus, it would not be possible under the circumstances for a jury in a criminal trial to find beyond a reasonable doubt that Ray received a personal benefit in exchange for the disclosure of confidential information. See, e.g., United States v. D'Amato, 39 F.3d 1249, 1256 (2d Cir.1994) (evidence must be sufficient to “reasonably infer” guilt).The evidence of personal benefit was even more scant in the NVIDIA chain. Choi and Lim were merely casual acquaintances. The evidence did not establish a history of loans or personal favors between the two. During cross examination, Lim testified that he did not provide anything of value to Choi in exchange for the information. Tr. 3067–68. Lim further testified that Choi did not know that Lim was trading NVIDIA stock (and in fact for the relevant period Lim did not trade stock), thus undermining any inference that Choi intended to make a “gift” of the profits earned on any transaction based on confidential information.Even assuming that the scant evidence described above was sufficient to permit the inference of a personal benefit, which we conclude it was not, the Government presented absolutely no testimony or any other evidence that Newman and Chiasson knew that they were trading on information obtained from insiders, or that those insiders received any benefit in exchange for such disclosures, or even that Newman

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and Chiasson consciously avoided learning of these facts. As discussed above, the Government is required to prove beyond a reasonable doubt that Newman and Chiasson knew that the insiders received a personal benefit in exchange for disclosing confidential information.It is largely uncontroverted that Chiasson and Newman, and even their analysts, who testified as cooperating witnesses for the Government, knew next to nothing about the insiders and nothing about what, if any, personal benefit had been provided to them. Adondakis said that he did not know what the relationship between the insider and the first-level tippee was, nor was he aware of any personal benefits exchanged for the information, nor did he communicate any such information to Chiasson. Adondakis testified that he merely told Chiasson that Goyal “was talking to someone within Dell,” and that a friend of a friend of Tortora's would be getting NVIDIA information. Tr. 1708, 1878. Adondakis further testified that he did not specifically tell Chiasson that the source of the NVIDIA information worked at NVIDIA. Similarly, Tortora testified that, while he was aware Goyal received information from someone at Dell who had access to “overall” financial numbers, he was not aware of the insider's name, or position, or the circumstances of how Goyal obtained the information. Tortora further testified that he did not know whether Choi received a personal benefit for disclosing inside information regarding NVIDIA.The Government now invites us to conclude that the jury could have found that the appellants knew the insiders disclosed the information “for some personal reason rather than for no reason at all.” Gov't Br. 65. But the Supreme Court affirmatively rejected the premise that a tipper who discloses confidential information necessarily does so to receive a personal benefit. See Dirks, 463 U.S. at 661–62 (“All disclosures of confidential corporate information are not inconsistent with the duty insiders owe to shareholders”). Moreover, it is inconceivable that a jury could conclude, beyond a reasonable doubt, that Newman and Chiasson were aware of a personal benefit, when Adondakis and Tortora, who were more intimately involved in the insider trading scheme as part of the “corrupt” analyst group, disavowed any such knowledge.Alternatively, the Government contends that the specificity, timing, and frequency of the updates provided to Newman and Chiasson about Dell and NVIDIA were so “overwhelmingly suspicious” that they warranted various material inferences that could support a guiltyverdict. Gov't Br. 65. Newman and Chiasson received four updates on Dell's earnings numbers in the weeks leading up to its August 2008 earnings announcement. Similarly, Newman and Chiasson received multiple updates on NVIDIA's earnings numbers between the close of the quarter and the company's earnings announcement. The Government argues that given the detailed nature and accuracy of these updates, Newman and Chiasson must have known, or deliberately avoided knowing, that the information originated with corporate insiders, and that those insiders disclosed the information in exchange for a personal benefit. We disagree.Even viewed in the light most favorable to the Government, the evidence presented at trial undermined the inference of knowledge in several ways. The evidence established that analysts at hedge funds routinely estimate metrics such as revenue,

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gross margin, operating margin, and earnings per share through legitimate financial modeling using publicly available information and educated assumptions about industry and company trends. For example, on cross-examination, cooperating witness Goyal testified that under his financial model on Dell, when he ran the model in January 2008 without any inside information, he calculated May 2008 quarter results of $16.071 billion revenue, 18.5% gross margin, and $0.38 earnings per share. Tr. 1566. These estimates came very close to Dell's reported earnings of $16.077 billion revenue; 18.4% gross margin, and $0.38 earnings per share. Appellants also elicited testimony from the cooperating witnesses and investor relations associates that analysts routinely solicited information from companies in order to check assumptions in their models in advance of earnings announcements. Goyal testified that he frequently spoke to internal relations departments to run his model by them and ask whether his assumptions were “too high or too low” or in the “ball park,” which suggests analysts routinely updated numbers in advance of the earnings announcements. Tr. 1511. Ray's supervisor confirmed that investor relations departments routinely assisted analysts with developing their modelsMoreover, the evidence established that NVIDIA and Dell's investor relations personnel routinely “leaked” earnings data in advance of quarterly earnings. Appellants introduced examples in which Dell insiders, including the head of Investor Relations, Lynn Tyson, selectively disclosed confidential quarterly financial information arguably similar to the inside information disclosed by Ray and Choi to establish relationships with financial firms who might be in a position to buy Dell's stock. For example, appellants introduced an email Tortora sent Newman summarizing a conversation he had with Tyson in which she suggested “low 12% opex [was] reasonable” for Dell's upcoming quarter and that she was “fairly confident on [operating margin] and [gross margin].” Tr. 568:18–581:23.No reasonable jury could have found beyond a reasonable doubt that Newman and Chiasson knew, or deliberately avoided knowing, that the information originated with corporate insiders. In general, information about a firm's finances could certainly be sufficiently detailed and proprietary to permit the inference that the tippee knew that the information came from an inside source. But in this case, where the financial information is of a nature regularly and accurately predicted by analyst modeling, and the tippees are several levels removed from the source, the inference that defendants knew, or should have known, that the information originated with a corporate insider is unwarranted.Moreover, even if detail and specificity could support an inference as to the nature of the source, it cannot, without more, permit an inference as to that source's improper motive for disclosure. That is especially true here, where the evidence showed that corporate insiders at Dell and NVIDIA regularly engaged with analysts and routinely selectively disclosed the same type of information. Thus, in light of the testimony (much of which was adduced from the Government's own witnesses) about the accuracy of the analysts' estimates and the selective disclosures by the companies themselves, no rational jury would find that the tips were so overwhelmingly suspicious that Newman and Chiasson either knew or consciously avoided knowing

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that the information came from corporate insiders or that those insiders received any personal benefit in exchange for the disclosure.In short, the bare facts in support of the Government's theory of the case are as consistent with an inference of innocence as one of guilt. Where the evidence viewed in the light most favorable to the prosecution gives equal or nearly equal circumstantial support to a theory of innocence as a theory of guilt, that evidence necessarily fails to establish guilt beyond a reasonable doubt. See United States v. Glenn, 312 F.3d 58, 70 (2d Cir.2002). Because the Government failed to demonstrate that Newman and Chiasson had the intent to commit insider trading, it cannot sustain the convictions on either the substantive insider trading counts or the conspiracy count. United States v. Gaviria, 740 F.2d 174, 183 (2d Cir.1984) (“[W]here the crime charged is conspiracy, a conviction cannot be sustained unless the Government establishes beyond a reasonable doubt that the defendant had the specific intent to violate the substantive statute.”) (internal quotation marks omitted). Consequently, we reverse Newman and Chiasson's convictions and remand with instructions to dismiss the indictment as it pertains to them.CONCLUSIONFor the foregoing reasons, we vacate the convictions and remand for the district court to dismiss the indictment with prejudice as it pertains to Newman and Chiasson.FOOTNOTES2.  The district court subsequently set the forfeiture amount at $1,382,217.3.  Although the Government argues that district court decisions in S.E.C. v. Thrasher, 152 F.Supp.2d 291 (S.D.N.Y.2001) and S.E .C. v. Musella, 678 F.Supp. 1060 (S.D.N.Y.1988) support their position, these cases merely stand for the unremarkable proposition that a tippee does not need to know the details of the insider's disclosure of information. The district courts determined that the tippee did not have to know for certain how information was disclosed, Thrasher, 152 F.Supp.2d at 304–05, nor the identity of the insiders, Musella, 678 F.Supp. at 1062–63. This is not inconsistent with a requirement that a defendant tippee understands that some benefit is being provided in return for the information.4.  See also United States v. Santoro, 647 F.Supp. 153, 170–71 (E.D.N.Y.1986) (“An allegation that the tippee knew of the tipper's breach necessarily charges that the tippee knew that the tipper was acting for personal gain.”) rev'd on other grounds sub nom. United States v. Davidoff, 845 F.2d 1151 (2d Cir.1988); Hernandez v. United States, 450 F.Supp.2d 1112, 1118 (C.D.Cal.2006) (“[U]nder the standard set forth in Dirks ” a tippee can be liable under Section 10(b) and Rule 10(b)–5 “if the tippee had knowledge of the insider-tipper's personal gain.”).5.  We note that Judge Sullivan had an opportunity to address the issue in Steinberg only because the Government chose to charge Matthew Steinberg in the same criminal case as Newman and Chiasson by filing a superseding indictment. Notably, the Government superseded to add Steinberg on March 29, 2013, after the conclusion of the Newman trial, after Judge Sullivan refused to give the defendants' requested charge on scienter now at issue on this appeal, and at a time when there was no possibility of a joint trial with the Newman defendants.

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BARRINGTON D. PARKER, Circuit Judge:

十、证券公司《券商经纪业务的若干法律问题》十一、信托公司:中国式证券公司十二、民事索赔《金融仲裁的若干问题》，《北京仲裁》发表

HALLIBURTON CO. v. ERICA P. JOHN FUND, INC. ( ) 718 F. 3d 423, vacated and remanded.

Investors can recover damages in a private securities fraud action only if they prove that they relied on the defendant’s misrepresentation in deciding to buy or sell a company’s stock. In Basic Inc. v. Levinson, 485 U. S. 224, this Court held that investors could satisfy this reliance requirement by invoking a presumption that the price of stock traded in an efficient market reflects all public, material information—including material misrepresentations. The Court also held, however, that a defendant could rebut this presumption by showing that the alleged misrepresentation did not actually affect the stock price—that is, that it had no “price impact.”

Respondent Erica P. John Fund, Inc. (EPJ Fund), filed a putative class action against Halliburton and one of its executives (collectively Halliburton), alleging that they made misrepresentations designed to inflate Halliburton’s stock price, in violation of section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b–5. The District Court initially denied EPJ Fund’s class certification motion, and the Fifth Circuit affirmed. But this Court vacated that judgment, concluding that securities fraud plaintiffs need not prove loss causation—a causal connection between the defendants’ alleged misrepresentations and the plaintiffs’ economic losses—at the class certification stage in order to invoke Basic’s presumption of reliance. On remand, Halliburton argued that class certification was nonetheless inappropriate because the evidence it had earlier introduced to disprove loss causation also showed that its alleged misrepresentations had not affected its stock price. By demonstrating the absence of any “price impact,” Halliburton contended, it had rebutted the Basic presumption. And without the benefit of that presumption, investors would have to prove reliance on an individual basis, meaning

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that individual issues would predominate over common ones and class certification would be inappropriate under Federal Rule of Civil Procedure 23(b)(3). The District Court rejected Halliburton’s argument and certified the class. The Fifth Circuit affirmed, concluding that Halliburton could use its price impact evidence to rebut the Basic presumption only at trial, not at the class certification stage.

Held:

1. Halliburton has not shown a “special justification,” Dickerson v. United States, 530 U. S. 428, for overruling Basic’s presumption of reliance. Pp. 4–16.

(a) To recover damages under section 10(b) and Rule 10b–5, a plaintiff must prove, as relevant here, “ ‘reliance upon the misrepresentation or omission.’ ” Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, 568 U. S. ___, ___. The Court recognized in Basic, however, that requiring direct proof of reliance from every individual plaintiff “would place an unnecessarily unrealistic evidentiary burden on the . . . plaintiff who has traded on an impersonal market,” 485 U. S., at 245, and “effectively would” prevent plaintiffs “from proceeding with a class action” in Rule 10b–5 suits, id., at 242. To address these concerns, the Court held that plaintiffs could satisfy the reliance element of a Rule 10b–5 action by invoking a rebuttable presumption of reliance. The Court based that presumption on what is known as the “fraud-on-the-market” theory, which holds that “the market price of shares traded on well-developed markets reflects all publicly available information, and, hence, any material misrepresentations.” Id., at 246. The Court also noted that the typical “investor who buys or sells stock at the price set by the market does so in reliance on the integrity of that price.” Id., at 247. As a result, whenever an investor buys or sells stock at the market price, his “reliance on any public material misrepresentations . . . may be presumed for purposes of a Rule 10b–5 action.” Id. at 247. Basic also emphasized that the presumption of reliance was rebuttable rather than conclusive. Pp. 5–7.

(b) None of Halliburton’s arguments for overruling Basic so discredit the decision as to constitute a “special justification.” Pp. 7–12.

(1) Halliburton first argues that the Basic presumption is inconsistent with Congress’s intent in passing the 1934 Exchange Act—the same argument made by the dissenting Justices in Basic. The Basic majority did not find that argument persuasive then, and Halliburton has given no new reason to endorse it now. Pp. 7–8.

(2) Halliburton also contends that Basic rested on two premises that have been undermined by developments in economic theory. First, it argues that the Basic Court espoused “a robust view of market efficiency” that is no longer tenable in light of empirical evidence ostensibly showing that material, public information often is not quickly incorporated into stock prices. The Court in Basic acknowledged, however,

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the debate among economists about the efficiency of capital markets and refused to endorse “any particular theory of how quickly and completely publicly available information is reflected in market price.” 485 U. S., at 248, n. 28. The Court instead based the presumption of reliance on the fairly modest premise that “market professionals generally consider most publicly announced material statements about companies, thereby affecting stock market prices.” Id., at 247, n. 24. Moreover, in making the presumption rebuttable, Basic recognized that market efficiency is a matter of degree and accordingly made it a matter of proof. Halliburton has not identified the kind of fundamental shift in economic theory that could justify overruling a precedent on the ground that it misunderstood, or has since been overtaken by, economic realities.

Halliburton also contests the premise that investors “invest ‘in reliance on the integrity of [the market] price,’ ” id., at 247, identifying a number of classes of investors for whom “price integrity” is supposedly “marginal or irrelevant.” But Basic never denied the existence of such investors, who in any event rely at least on the facts that market prices will incorporate public information within a reasonable period and that market prices, however inaccurate, are not distorted by fraud. Pp. 8–12.

(c) The principle of stare decisis has “ ‘special force’ ” “in respect to statutory interpretation” because “ ‘Congress remains free to alter what [the Court has] done.’ ” John R. Sand & Gravel Co. v. United States, 552 U. S. 130. So too with Basic’s presumption of reliance. The presumption is not inconsistent with this Court’s more recent decisions construing the Rule 10b–5 cause of action. In Central Bank of Denver, N. A. v. First Interstate Bank of Denver, N. A., 511 U. S. 164, and Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U. S. 148, the Court declined to effectively eliminate the reliance element by extending liability to entirely new categories of defendants who themselves had not made any material, public misrepresentation. The Basic presumption, by contrast, merely provides an alternative means of satisfying the reliance element. Nor is the Basic presumption inconsistent with the Court’s recent decisions governing class action certification, which require plaintiffs to prove—not simply plead—that their proposed class satisfies each requirement of Federal Rule of Civil Procedure 23, including, if applicable, the predominance requirement of Rule 23(b)(3). See, e.g., Wal-Mart Stores, Inc. v. Dukes, 564 U. S. ___, ___. The Basic presumption does not relieve plaintiffs of that burden but rather sets forth what plaintiffs must prove to demonstrate predominance. Finally, Halliburton emphasizes the possible harmful consequences of the securities class actions facilitated by the Basic presumption, but such concerns are more appropriately addressed to Congress, which has in fact responded, to some extent, to many of them. Pp. 12–16.

2. For the same reasons the Court declines to overrule Basic’s presumption of reliance, it also declines to modify the prerequisites for invoking the presumption by requiring plaintiffs to prove “price impact” directly at the class certification stage. The

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Basic presumption incorporates two constituent presumptions: First, if a plaintiff shows that the defendant’s misrepresentation was public and material and that the stock traded in a generally efficient market, he is entitled to a presumption that the misrepresentation affected the stock price. Second, if the plaintiff also shows that he purchased the stock at the market price during the relevant period, he is entitled to a further presumption that he purchased the stock in reliance on the defendant’s misrepresentation. Requiring plaintiffs to prove price impact directly would take away the first constituent presumption. Halliburton’s argument for doing so is the same as its argument for overruling the Basic presumption altogether, and it meets the same fate. Pp. 16–18.

3. The Court agrees with Halliburton, however, that defendants must be afforded an opportunity to rebut the presumption of reliance before class certification with evidence of a lack of price impact. Defendants may already introduce such evidence at the merits stage to rebut the Basic presumption, as well as at the class certification stage to counter a plaintiff’s showing of market efficiency. Forbidding defendants to rely on the same evidence prior to class certification for the particular purpose of rebutting the presumption altogether makes no sense, and can readily lead to results that are inconsistent with Basic’s own logic. Basic allows plaintiffs to establish price impact indirectly, by showing that a stock traded in an efficient market and that a defendant’s misrepresentations were public and material. But an indirect proxy should not preclude consideration of a defendant’s direct, more salient evidence showing that an alleged misrepresentation did not actually affect the stock’s price and, consequently, that the Basic presumption does not apply. Amgen does not require a different result. There, the Court held that materiality, though a prerequisite for invoking the Basic presumption, should be left to the merits stage because it does not bear on the predominance requirement of Rule 23(b)(3). In contrast, the fact that a misrepresentation has price impact is “Basic’s fundamental premise.” Erica P. John Fund, Inc. v. Halliburton Co., 563 U. S. ___, ___. It thus has everything to do with the issue of predominance at the class certification stage. That is why, if reliance is to be shown through the Basic presumption, the publicity and market efficiency prerequisites must be proved before class certification. Given that such indirect evidence of price impact will be before the court at the class certification stage in any event, there is no reason to artificially limit the inquiry at that stage by excluding direct evidence of price impact. Pp. 18–23.

718 F. 3d 423, vacated and remanded.

HALLIBURTON CO., et al., PETITIONERS v. ERICA P. JOHN FUND, INC., fka ARCHDIOCESE OF MILWAUKEE SUPPORTING FUND, INC.

Chief Justice Roberts delivered the opinion of the Court.

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Investors can recover damages in a private securities fraud action only if they prove that they relied on the defendant’s misrepresentation in deciding to buy or sell a company’s stock. In Basic Inc. v. Levinson, 485 U. S. 224 (1988) , we held that investors could satisfy this reliance requirement by invoking a presumption that the price of stock traded in an efficient market reflects all public, material information—including material misstatements. In such a case, we concluded, anyone who buys or sells the stock at the market price may be considered to have relied on those misstatements.

We also held, however, that a defendant could rebut this presumption in a number of ways, including by showing that the alleged misrepresentation did not actually affect the stock’s price—that is, that the misrepresentation had no “price impact.” The questions presented are whether we should overrule or modify Basic’s presumption of reliance and, if not, whether defendants should nonetheless be afforded an opportunity in securities class action cases to rebut the presumption at the class certification stage, by showing a lack of price impact.

I

Respondent Erica P. John Fund, Inc. (EPJ Fund), is the lead plaintiff in a putative class action against Halliburton and one of its executives (collectively Halliburton) alleging violations of section 10(b) of the Securities Exchange Act of 1934, 48Stat. 891, 15 U. S. C. §78j(b), and Securities and Exchange Commission Rule 10b–5, 17 CFR §240.10b–5 (2013). According to EPJ Fund, between June 3, 1999, and December 7, 2001, Halliburton made a series of misrepresentations regarding its potential liability in asbestos litigation, its expected revenue from certain construction contracts, and the anticipated benefits of its merger with another company—all in an attempt to inflate the price of its stock. Halliburton subsequently made a number of corrective disclosures, which, EPJ Fund contends, caused the company’s stock price to drop and investors to lose money.

EPJ Fund moved to certify a class comprising all investors who purchased Halliburton common stock during the class period. The District Court found that the proposed class satisfied all the threshold requirements of Federal Rule of Civil Procedure 23(a): It was sufficiently numerous, there were common questions of law or fact, the representative parties’ claims were typical of the class claims, and the representatives could fairly and adequately protect the interests of the class. App. to Pet. for Cert. 54a. And except for one difficulty, the court would have also concluded that the class satisfied the requirement of Rule 23(b)(3) that “the questions of law or fact common to class members predominate over any questions affecting only individual members.” See id., at 55a, 98a. The difficulty was that Circuit precedent required securities fraud plaintiffs to prove “loss causation”—a causal connection between the defendants’ alleged misrepresentations and the plaintiffs’ economic losses—in order to invoke Basic’s presumption of reliance and obtain class certification. App. to Pet.

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for Cert. 55a, and n. 2. Because EPJ Fund had not demonstrated such a connection for any of Halliburton’s alleged misrepresentations, the District Court refused to certify the proposed class. Id., at 55a, 98a. The United States Court of Appeals for the Fifth Circuit affirmed the denial of class certification on the same ground. Archdiocese of Milwaukee Supporting Fund, Inc. v. Halliburton Co., 597 F. 3d 330 (2010).

We granted certiorari and vacated the judgment, finding nothing in “Basic or its logic” to justify the Fifth Circuit’s requirement that securities fraud plaintiffs prove loss causation at the class certification stage in order to invoke Basic’s presumption of reliance. Erica P. John Fund, Inc. v. Halliburton Co., 563 U. S. ___, ___ (2011) (Halliburton I ) (slip op., at 6). “Loss causation,” we explained, “addresses a matter different from whether an investor relied on a misrepresentation, presumptively or otherwise, when buying or selling a stock.” Ibid. We remanded the case for the lower courts to consider “any further arguments against class certification” that Halliburton had preserved. Id., at ___ (slip op., at 9).

On remand, Halliburton argued that class certification was inappropriate because the evidence it had earlier introduced to disprove loss causation also showed that none of its alleged misrepresentations had actually af-fected its stock price. By demonstrating the absence of any “price impact,” Halliburton contended, it had rebutted Basic’s presumption that the members of the proposed class had relied on its alleged misrepresentations simply by buying or selling its stock at the market price. And without the benefit of the Basic presumption, investors would have to prove reliance on an individual basis, meaning that individual issues would predominate over common ones. The District Court declined to consider Halliburton’s argument, holding that the Basic presumption applied and certifying the class under Rule 23(b)(3). App. to Pet. for Cert. 30a.

The Fifth Circuit affirmed. 718 F. 3d 423 (2013). The court found that Halliburton had preserved its price impact argument, but to no avail. Id., at 435–436. While acknowledging that “Halliburton’s price impact evidence could be used at the trial on the merits to refute the presumption of reliance,” id., at 433, the court held that Halliburton could not use such evidence for that purpose at the class certification stage, id., at 435. “[P]rice impact evidence,” the court explained, “does not bear on the question of common question predominance [under Rule 23(b)(3)], and is thus appropriately considered only on the merits after the class has been certified.” Ibid.

We once again granted certiorari, 571 U. S. ___ (2013), this time to resolve a conflict among the Circuits over whether securities fraud defendants may attempt to rebut the Basic presumption at the class certification stage with evidence of a lack of price impact. We also accepted Halliburton’s invitation to reconsider the presumption of reliance for securities fraud claims that we adopted in Basic.

II

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Halliburton urges us to overrule Basic’s presumption of reliance and to instead require every securities fraud plaintiff to prove that he actually relied on the defendant’s misrepresentation in deciding to buy or sell a company’s stock. Before overturning a long-settled precedent, however, we require “special justification,” not just an argument that the precedent was wrongly decided. Dickerson v. United States, 530 U. S. 428, 443 (2000) (internal quotation marks omitted). Halliburton has failed to make that showing.

A

Section 10(b) of the Securities Exchange Act of 1934 and the Securities and Exchange Commission’s Rule 10b–5 prohibit making any material misstatement or omission in connection with the purchase or sale of any security. Although section 10(b) does not create an express private cause of action, we have long recognized an implied private cause of action to enforce the provision and its implementing regulation. See Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723, 730 (1975) . To recover damages for violations of section 10(b) and Rule 10b–5, a plaintiff must prove “ ‘(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.’ ” Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, 568 U. S. ___, ___ (2013) (slip op., at 3–4) (quoting Matrixx Initiatives, Inc. v. Siracusano, 563 U. S. ___, ___ (2011) (slip op., at 9)).

The reliance element “ ‘ensures that there is a proper connection between a defendant’s misrepresentation and a plaintiff’s injury.’ ” 568 U. S., at ___ (slip op., at 4) (quoting Halliburton I, 563 U. S., at ___ (slip op., at 4)). “The traditional (and most direct) way a plaintiff can demonstrate reliance is by showing that he was aware of a company’s statement and engaged in a relevant transaction—e.g., purchasing common stock—based on that specific misrepresentation.” Id., at ___ (slip op., at 4).

In Basic, however, we recognized that requiring such direct proof of reliance “would place an unnecessarily unrealistic evidentiary burden on the Rule 10b–5 plaintiff who has traded on an impersonal market.” 485 U. S., at 245. That is because, even assuming an investor could prove that he was aware of the misrepresentation, he would still have to “show a speculative state of facts, i.e., how he would have acted . . . if the misrepresentation had not been made.” Ibid.

We also noted that “[r]equiring proof of individualized reliance” from every securities fraud plaintiff “effectively would . . . prevent[ ] [plaintiffs] from proceeding with a class action” in Rule 10b–5 suits. Id., at 242. If every plaintiff had to prove direct reliance on the defendant’s misrepresentation, “individual issues then would . . . overwhelm[ ] the common ones,” making certification under Rule 23(b)(3) inappropriate. Ibid.

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To address these concerns, Basic held that securities fraud plaintiffs can in certain circumstances satisfy the reliance element of a Rule 10b–5 action by invoking a rebuttable presumption of reliance, rather than proving direct reliance on a misrepresentation. The Court based that presumption on what is known as the “fraud-on-the-market” theory, which holds that “the market price of shares traded on well-developed markets reflects all publicly available information, and, hence, any material misrepresentations.” Id., at 246. The Court also noted that, rather than scrutinize every piece of public information about a company for himself, the typical “investor who buys or sells stock at the price set by the market does so in reliance on the integrity of that price”—the belief that it reflects all public, material information. Id., at 247. As a result, whenever the investor buys or sells stock at the market price, his “reliance on any public material misrepresentations . . . may be presumed for purposes of a Rule 10b–5 action.” Ibid.

Based on this theory, a plaintiff must make the following showings to demonstrate that the presumption of reliance applies in a given case: (1) that the alleged misrepresentations were publicly known, (2) that they were material, (3) that the stock traded in an efficient market, and (4) that the plaintiff traded the stock between the time the misrepresentations were made and when the truth was revealed. See id., at 248, n. 27; Halliburton I, supra, at ___ (slip op., at 5–6).

At the same time, Basic emphasized that the presumption of reliance was rebuttable rather than conclusive. Specifically, “[a]ny showing that severs the link between the alleged misrepresentation and either the price received (or paid) by the plaintiff, or his decision to trade at a fair market price, will be sufficient to rebut the presumption of reliance.” 485 U. S., at 248. So for example, if a defendant could show that the alleged misrepresentation did not, for whatever reason, actually affect the market price, or that a plaintiff would have bought or sold the stock even had he been aware that the stock’s price was tainted by fraud, then the presumption of reliance would not apply. Id., at 248–249. In either of those cases, a plaintiff would have to prove that he directly relied on the defendant’s misrepresentation in buying or selling the stock.

B

Halliburton contends that securities fraud plaintiffs should always have to prove direct reliance and that the Basic Court erred in allowing them to invoke a presumption of reliance instead. According to Halliburton, the Basic presumption contravenes congressional intent and has been undermined by subsequent developments in economic theory. Neither argument, however, so discredits Basic as to constitute “special justification” for overruling the decision.

1

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Halliburton first argues that the Basic presumption is inconsistent with Congress’s intent in passing the 1934 Exchange Act. Because “[t]he Section 10(b) action is a ‘judicial construct that Congress did not enact,’ ” this Court, Halliburton insists, “must identify—and borrow from—the express provision that is ‘most analogous to the private 10b–5 right of action.’ ” Brief for Petitioners 12 (quoting Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U. S. 148, 164 (2008) ; Musick, Peeler& Garrett v. Employers Ins. of Wausau, 508 U. S. 286, 294 (1993) ). According to Halliburton, the closest analogueto section 10(b) is section 18(a) of the Act, which cre-ates an express private cause of action allowing inves-tors to recover damages based on misrepresentations made in certain regulatory filings. 15 U. S. C. §78r(a). That provision requires an investor to prove that he bought or sold stock “in reliance upon” the defendant’s misrepresentation. Ibid. In ignoring this direct reliance requirement, the argument goes, the Basic Court relieved Rule 10b–5 plaintiffs of a burden that Congress would have imposed had it created the cause of action.

EPJ Fund contests both premises of Halliburton’s argument, arguing that Congress has affirmed Basic’s construction of section 10(b) and that, in any event, the closest analogue to section 10(b) is not section 18(a) but section 9, 15 U. S. C. §78i—a provision that does not require actual reliance.

We need not settle this dispute. In Basic, the dissenting Justices made the same argument based on section 18(a) that Halliburton presses here. See 485 U. S., at 257–258 (White, J., concurring in part and dissenting in part). The Basic majority did not find that argument persuasive then, and Halliburton has given us no new reason to endorse it now.

2

Halliburton’s primary argument for overruling Basic is that the decision rested on two premises that can no longer withstand scrutiny. The first premise concerns what is known as the “efficient capital markets hypothesis.” Basic stated that “the market price of shares traded on well-developed markets reflects all publicly available information, and, hence, any material misrepresentations.” Id., at 246. From that statement, Halliburton concludes that the Basic Court espoused “a robust view of market efficiency” that is no longer tenable, for “ ‘overwhelming empirical evidence’ now ‘suggests that capital markets are not fundamentally efficient.’ ” Brief for Petitioners 14–16 (quoting Lev & de Villiers, Stock Price Crashes and 10b–5 Damages: A Legal, Economic, and Policy Analysis, 47 Stan. L. Rev 7, 20 (1994)). To support this contention, Halliburton cites studies purporting to show that “public information is often not incorporated immediately (much less rationally) into market prices.” Brief for Petitioners 17; see id., at 16–20. See also Brief for Law Professors as Amici Curiae 15–18.

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Halliburton does not, of course, maintain that capital markets are always inefficient. Rather, in its view, Basic’s fundamental error was to ignore the fact that “ ‘efficiency is not a binary, yes or no question.’ ” Brief for Petitioners 20 (quoting Langevoort, Basic at Twenty: Rethinking Fraud on the Market, 2009 Wis. L. Rev. 151, 167)). The markets for some securities are more efficient than the markets for others, and even a single market can process different kinds of information more or less efficiently, depending on how widely the information is disseminated and how easily it is understood. Brief for Petitioners at 20–21. Yet Basic, Halliburton asserts, glossed over these nuances, assuming a false dichotomy that renders the presumption of reliance both underinclusive and overinclusive: A misrepresentation can distort a stock’s market price even in a generally inefficient market, and a misrepresentation can leave a stock’s market price unaffected even in a generally efficient one. Brief for Petitioners at 21.

Halliburton’s criticisms fail to take Basic on its own terms. Halliburton focuses on the debate among economists about the degree to which the market price of a company’s stock reflects public information about the company—and thus the degree to which an investor can earn an abnormal, above-market return by trading on such information. See Brief for Financial Economists as Amici Curiae 4–10 (describing the debate). That debate is not new. Indeed, the Basic Court acknowledged it and declined to enter the fray, declaring that “[w]e need not determine by adjudication what economists and social scientists have debated through the use of sophisticated statistical analysis and the application of economic the-ory.” 485 U. S., at 246–247, n. 24. To recognize the presumption of reliance, the Court explained, was not “conclusively to adopt any particular theory of how quickly and completely publicly available information is reflected in market price.” Id., at 248, n. 28. The Court instead based the presumption on the fairly modest premise that “market professionals generally consider most publicly announced material statements about companies, thereby affecting stock market prices.” Id., at 247, n. 24. Basic’s presumption of reliance thus does not rest on a “binary” view of market efficiency. Indeed, in making the presumption rebuttable, Basic recognized that market efficiency is a matter of degree and accordingly made it a matter of proof.

The academic debates discussed by Halliburton have not refuted the modest premise underlying the presumption of reliance. Even the foremost critics of the efficient-capital-markets hypothesis acknowledge that public information generally affects stock prices. See, e.g., Shiller, We’ll Share the Honors, and Agree to Disagree, N. Y. Times, Oct. 27, 2013, p. BU6 (“Of course, prices reflect available information”). Halliburton also conceded as much in its reply brief and at oral argument. See Reply Brief 13 (“market prices generally respond to new, material information”); Tr. of Oral Arg. 7. Debates about the precise degree to which stock prices accurately reflect public information are thus largely beside the point. “That the . . . price [of a stock] may be inaccurate does not detract from the fact that false statements affect it, and cause loss,” which is “all that Basic requires.” Schleicher v. Wendt, 618 F. 3d 679,

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685 (CA7 2010) (Easterbrook, C. J.). Even though the efficient capital markets hypothesis may have “garnered substantial criticism since Basic,” post, at 6 (Thomas, J., concurring in judgment), Halliburton has not identified the kind of fundamental shift in economic the-ory that could justify overruling a precedent on the ground that it misunderstood, or has since been overtaken by, economic realities. Contrast State Oil Co. v. Khan, 522 U. S. 3 (1997) , unanimously overruling Albrecht v. Herald Co., 390 U. S. 145 (1968) .

Halliburton also contests a second premise underlying the Basic presumption: the notion that investors “invest ‘in reliance on the integrity of [the market] price.’ ” Reply Brief 14 (quoting 485 U. S., at 247; alteration in original). Halliburton identifies a number of classes of investors for whom “price integrity” is supposedly “marginal or irrelevant.” Reply Brief 14. The primary example is the value investor, who believes that certain stocks are undervalued or overvalued and attempts to “beat the market” by buying the undervalued stocks and selling the overvalued ones. Brief for Petitioners 15–16 (internal quotation marks omitted). See also Brief for Vivendi S. A. as Amicus Curiae 3–10 (describing the investment strategies of day trad-ers, volatility arbitragers, and value investors). If many investors “are indifferent to prices,” Halliburton contends, then courts should not presume that investors rely on the integrity of those prices and any misrepresentations incorporated into them. Reply Brief 14.

But Basic never denied the existence of such investors. As we recently explained, Basic concluded only that “it is reasonable to presume that most investors—knowing that they have little hope of outperforming the market in the long run based solely on their analysis of publicly available information—will rely on the security’s market price as an unbiased assessment of the security’s value in light of all public information.” Amgen, 568 U. S., at ___ (slip op., at 5) (emphasis added).

In any event, there is no reason to suppose that even Halliburton’s main counterexample—the value investor—is as indifferent to the integrity of market prices as Halliburton suggests. Such an investor implicitly relies on the fact that a stock’s market price will eventually reflect material information—how else could the market correction on which his profit depends occur? To be sure, the value investor “does not believe that the market price accurately reflects public information at the time he transacts.” Post, at 11. But to indirectly rely on a misstatement in the sense relevant for the Basic presumption, he need only trade stock based on the belief that the market price will incorporate public information within a reasonable period. The value investor also presumably tries to estimate how undervalued or overvalued a particular stock is, and such estimates can be skewed by a market price tainted by fraud.

C

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The principle of stare decisis has “ ‘special force’ ” “in respect to statutory interpretation” because “ ‘Congress remains free to alter what we have done.’ ” John R. Sand & Gravel Co. v. United States, 552 U. S. 130, 139 (2008) (quoting Patterson v. McLean Credit Union, 491 U. S. 164–173 (1989)). So too with Basic’s presumption of reliance. Although the presumption is a judicially created doctrine designed to implement a judicially created cause of action, we have described the presumption as “a substantive doctrine of federal securities-fraud law.” Amgen, supra, at ___ (slip op., at 5). That is because it provides a way of satisfying the reliance element of the Rule 10b–5 cause of action. See, e.g., Dura Pharmaceuticals, Inc. v. Broudo, 544 U. S. 336–342 (2005). As with any other element of that cause of action, Congress may overturnor modify any aspect of our interpretations of the reli-ance requirement, including the Basic presumption it-self. Given that possibility, we see no reason to exempt the Basic presumption from ordinary principles of stare decisis.

To buttress its case for overruling Basic, Halliburton contends that, in addition to being wrongly decided, the decision is inconsistent with our more recent decisions construing the Rule 10b–5 cause of action. As Halliburton notes, we have held that “we must give ‘narrow dimensions . . . to a right of action Congress did not authorize when it first enacted the statute and did not expand when it revisited the law.’ ” Janus Capital Group, Inc. v. First Derivative Traders, 564 U. S. ___, ___ (2011) (slip op., at 6) (quoting Stoneridge, 552 U. S., at 167); see, e.g., Central Bank of Denver, N. A. v. First Interstate Bank of Denver, N. A., 511 U. S. 164 (1994) (refusing to recognize aiding-and-abetting liability under the Rule 10b–5 cause of action); Stoneridge, supra (refusing to extend Rule 10b–5 liability to certain secondary actors who did not themselves make material misstatements). Yet the Basic presumption, Halliburton asserts, does just the opposite, expanding the Rule 10b–5 cause of action. Brief for Petitioners 27–29.

Not so. In Central Bank and Stoneridge, we declined to extend Rule 10b–5 liability to entirely new categories of defendants who themselves had not made any material, public misrepresentation. Such an extension, we explained, would have eviscerated the requirement that a plaintiff prove that he relied on a misrepresentation made by the defendant. See Central Bank, supra, at 180; Stone-ridge, supra, at 157, 159. The Basic presumption doesnot eliminate that requirement but rather provides an alternative means of satisfying it. While the presumption makes it easier for plaintiffs to prove reliance, it does not alter the elements of the Rule 10b–5 cause of action and thus maintains the action’s original legal scope.

Halliburton also argues that the Basic presumption cannot be reconciled with our recent decisions governing class action certification under Federal Rule of Civil Procedure 23. Those decisions have made clear that plaintiffs wishing to proceed through a class action must actually prove—not simply plead—that their proposed class satisfies each requirement of Rule 23, including (if applicable) the predominance requirement of Rule 23(b)(3). See Wal-Mart Stores, Inc. v. Dukes, 564 U. S. ___, ___

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(2011) (slip op., at 10); Comcast Corp. v. Behrend, 569 U. S. ___, ___ (2013) (slip op., at 5–6). According to Halliburton, Basic relieves Rule 10b–5 plaintiffs of that burden, allowing courts to presume that common issues of reliance predominate over individual ones.

That is not the effect of the Basic presumption. In securities class action cases, the crucial requirement for class certification will usually be the predominance requirement of Rule 23(b)(3). The Basic presumption does not relieve plaintiffs of the burden of proving—before class certification—that this requirement is met. Basic instead establishes that a plaintiff satisfies that burden by proving the prerequisites for invoking the presumption—namely, publicity, materiality, market efficiency, and market timing. The burden of proving those prerequisites still rests with plaintiffs and (with the exception of materiality) must be satisfied before class certification. Basic does not, in other words, allow plaintiffs simply to plead that common questions of reliance predominate over individual ones, but rather sets forth what they must prove to demonstrate such predominance.

Basic does afford defendants an opportunity to rebut the presumption of reliance with respect to an individual plaintiff by showing that he did not rely on the integrity of the market price in trading stock. While this has the effect of “leav[ing] individualized questions of reliance in the case,” post, at 12, there is no reason to think that these questions will overwhelm common ones and render class certification inappropriate under Rule 23(b)(3). That the defendant might attempt to pick off the occasional class member here or there through individualized rebuttal does not cause individual questions to predominate.

Finally, Halliburton and its amici contend that, by facilitating securities class actions, the Basic presumption produces a number of serious and harmful consequences. Such class actions, they say, allow plaintiffs to extort large settlements from defendants for meritless claims; punish innocent shareholders, who end up having to pay settlements and judgments; impose excessive costs on businesses; and consume a disproportionately large share of judicial resources. Brief for Petitioners 39–45.

These concerns are more appropriately addressed to Congress, which has in fact responded, to some extent, to many of the issues raised by Halliburton and its amici. Congress has, for example, enacted the Private Securities Litigation Reform Act of 1995 (PSLRA), 109Stat. 737, which sought to combat perceived abuses in securities litigation with heightened pleading requirements, limits on damages and attorney’s fees, a “safe harbor” for certain kinds of statements, restrictions on the selection of lead plaintiffs in securities class actions, sanctions for frivolous litigation, and stays of discovery pending motions to dismiss. See Amgen, 568 U. S., at ___ (slip op., at 19–20). And to prevent plaintiffs from circumventing these restrictions by bringing securities class actions under state law in state court, Congress also enacted the Securities Litigation Uniform Standards Act of 1998, 112Stat. 3227, which precludes

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many state law class actions alleging securities fraud. See Amgen, supra, at ___ (slip op., at 20). Such legislation demonstrates Congress’s willingness to consider policy concerns of the sort that Halliburton says should lead us to overrule Basic.

III

Halliburton proposes two alternatives to overruling Basic that would alleviate what it regards as the decision’s most serious flaws. The first alternative would require plaintiffs to prove that a defendant’s misrepresentation actually affected the stock price—so-called “price impact”—in order to invoke the Basic presumption. It should not be enough, Halliburton contends, for plaintiffs to demonstrate the general efficiency of the market in which the stock traded. Halliburton’s second proposed alternative would allow defendants to rebut the presumption of reliance with evidence of a lack of price impact, not only at the merits stage—which all agree defendants may already do—but also before class certification.

A

As noted, to invoke the Basic presumption, a plaintiff must prove that: (1) the alleged misrepresentations were publicly known, (2) they were material, (3) the stock traded in an efficient market, and (4) the plaintiff traded the stock between when the misrepresentations were made and when the truth was revealed. See Basic, 485 U. S., at 248, n. 27; Amgen, supra, at ___ (slip op., at 15). Each of these requirements follows from the fraud-on-the-market theory underlying the presumption. If the misrepresentation was not publicly known, then it could not have distorted the stock’s market price. So too if the misrepresentation was immaterial—that is, if it would not have “ ‘been viewed by the reasonable investor as having significantly altered the “total mix” of information made available,’ ” Basic, supra, at 231–232 (quoting TSC Industries, Inc. v. Northway, Inc., 426 U. S. 438, 449 (1976) )—or if the market in which the stock traded was inefficient. And if the plaintiff did not buy or sell the stock after the misrepresentation was made but before the truth was revealed, then he could not be said to have acted in reliance on a fraud-tainted price.

The first three prerequisites are directed at price impact—“whether the alleged misrepresentations affected the market price in the first place.” Halliburton I, 563 U. S., at ___ (slip op., at 8). In the absence of price impact, Basic’s fraud-on-the-market theory and presumption of reliance collapse. The “fundamental premise” underlying the presumption is “that an investor presumptively relies on a misrepresentation so long as it was reflected in the market price at the time of his transaction.” 563 U. S., at ___ (slip op., at 7). If it was not, then there is “no grounding for any contention that [the] investor[ ] indirectly relied on th[at] misrepresentation[ ] through [his] reliance on the integrity of the market price.” Amgen, supra, at ___ (slip op., at 17).

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Halliburton argues that since the Basic presumption hinges on price impact, plaintiffs should be required to prove it directly in order to invoke the presumption. Proving the presumption’s prerequisites, which are at best an imperfect proxy for price impact, should not suffice.

Far from a modest refinement of the Basic presumption, this proposal would radically alter the required showing for the reliance element of the Rule 10b–5 cause of action. What is called the Basic presumption actually incorporates two constituent presumptions: First, if a plaintiff shows that the defendant’s misrepresentation was public and material and that the stock traded in a generally efficient market, he is entitled to a presumption that the misrepresentation affected the stock price. Second, if the plaintiff also shows that he purchased the stock at the market price during the relevant period, he is entitled to a further presumption that he purchased the stock in reliance on the defendant’s misrepresentation.

By requiring plaintiffs to prove price impact directly, Halliburton’s proposal would take away the first constituent presumption. Halliburton’s argument for doing so is the same as its primary argument for overruling the Basic presumption altogether: Because market efficiency is not a yes-or-no proposition, a public, material misrepresentation might not affect a stock’s price even in a generally efficient market. But as explained, Basic never suggested otherwise; that is why it affords defendants an opportunity to rebut the presumption by showing, among other things, that the particular misrepresentation at issue did not affect the stock’s market price. For the same reasons we declined to completely jettison the Basic presumption, we decline to effectively jettison half of it by revising the prerequisites for invoking it.

B

Even if plaintiffs need not directly prove price impact to invoke the Basic presumption, Halliburton contends that defendants should at least be allowed to defeat the presumption at the class certification stage through evidence that the misrepresentation did not in fact affect the stock price. We agree.

1

There is no dispute that defendants may introduce such evidence at the merits stage to rebut the Basic presumption. Basic itself “made clear that the presumption was just that, and could be rebutted by appropriate evidence,” including evidence that the asserted misrepresentation (or its correction) did not affect the market price of the defendant’s stock. Halliburton I, supra, at ___ (slip op., at 5); see Basic, supra, at 248.

Nor is there any dispute that defendants may introduce price impact evidence at the class certification stage, so long as it is for the purpose of countering a plaintiff ’s showing of market efficiency, rather than directly rebutting the presumption. As EPJ

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Fund acknowledges, “[o]f course . . . defendants can introduce evidence at class certification of lack of price impact as some evidence that the market is not efficient.” Brief for Respondent 53. See also Brief for United States as Amicus Curiae 26.

After all, plaintiffs themselves can and do introduce evidence of the existence of price impact in connection with “event studies”—regression analyses that seek to show that the market price of the defendant’s stock tends to respond to pertinent publicly reported events. See Brief for Law Professors as Amici Curiae 25–28. In this case, for example, EPJ Fund submitted an event study of various episodes that might have been expected to affect the price of Halliburton’s stock, in order to demonstrate that the market for that stock takes account of material, public information about the company. See App. 217–230 (describing the results of the study). The episodes examined by EPJ Fund’s event study included one of the alleged misrepresentations that form the basis of the Fund’s suit. See id., at 230, 343–344. See also In re Xcelera.com Securities Litigation, 430 F. 3d 503, 513 (CA1 2005) (event study included effect of misrepresentation challenged in the case).

Defendants—like plaintiffs—may accordingly submit price impact evidence prior to class certification. What defendants may not do, EPJ Fund insists and the Court of Appeals held, is rely on that same evidence prior to class certification for the particular purpose of rebutting the presumption altogether.

This restriction makes no sense, and can readily lead to bizarre results. Suppose a defendant at the certification stage submits an event study looking at the impact on the price of its stock from six discrete events, in an effort to refute the plaintiffs’ claim of general market efficiency. All agree the defendant may do this. Suppose one of the six events is the specific misrepresentation asserted by the plaintiffs. All agree that this too is perfectly acceptable. Now suppose the district court determines that, despite the defendant’s study, the plaintiff has carried its burden to prove market efficiency, but that the evidence shows no price impact with respect to the specific misrepresentation challenged in the suit. The evidence at the certification stage thus shows an efficient market, on which the alleged misrepresentation had no price impact. And yet under EPJ Fund’s view, the plaintiffs’ action should be certified and proceed as a class action (with all that entails), even though the fraud-on-the-market theory does not apply and common reliance thus cannot be presumed.

Such a result is inconsistent with Basic’s own logic. Under Basic’s fraud-on-the-market theory, market efficiency and the other prerequisites for invoking the presumption constitute an indirect way of showing price impact. As explained, it is appropriate to allow plaintiffs to rely on this indirect proxy for price impact, rather than requiring them to prove price impact directly, given Basic’s rationales for recognizing a presumption of reliance in the first place. See supra, at 6–7, 16–17.

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But an indirect proxy should not preclude direct evidence when such evidence is available. As we explained in Basic, “[a]ny showing that severs the link between the alleged misrepresentation and . . . the price received (or paid) by the plaintiff . . . will be sufficient to rebut the presumption of reliance” because “the basis for finding that the fraud had been transmitted through market price would be gone.” 485 U. S., at 248. And without the presumption of reliance, a Rule 10b–5 suit cannot proceed as a class action: Each plaintiff would have to prove reliance individually, so common issues would not “predominate” over individual ones, as required by Rule 23(b)(3). Id., at 242. Price impact is thus an essential precondition for any Rule 10b–5 class action. While Basic allows plaintiffs to establish that precondition indirectly, it does not require courts to ignore a defendant’s direct, more salient evidence showing that the alleged misrepresentation did not actually affect the stock’s market price and, consequently, thatthe Basic presumption does not apply.

2

The Court of Appeals relied on our decision in Amgen in holding that Halliburton could not introduce evidence of lack of price impact at the class certification stage. The question in Amgen was whether plaintiffs could be required to prove (or defendants be permitted to disprove) materiality before class certification. Even though materiality is a prerequisite for invoking the Basic presumption, we held that it should be left to the merits stage, because it does not bear on the predominance requirement of Rule 23(b)(3). We reasoned that materiality is an objective issue susceptible to common, classwide proof. 568 U. S., at ___ (slip op., at 11). We also noted that a failure to prove materiality would necessarily defeat every plaintiff’s claim on the merits; it would not simply preclude invocation of the presumption and thereby cause individual questions of reliance to predominate over common ones. Ibid. See also id., at ___ (slip op., at 17–18). In this latter respect, we explained, materiality differs from the publicity and market efficiency prerequisites, neither of which is necessary to prove a Rule 10b–5 claim on the merits. Id., at ___–___ (slip op., at 16–18).

EPJ Fund argues that much of the foregoing could be said of price impact as well. Fair enough. But price impact differs from materiality in a crucial respect. Given that the other Basic prerequisites must still be proved at the class certification stage, the common issue of materiality can be left to the merits stage without risking the certification of classes in which individual issues will end up overwhelming common ones. And because materiality is a discrete issue that can be resolved in isolation from the other prerequisites, it can be wholly confined to the merits stage.

Price impact is different. The fact that a misrepresentation “was reflected in the market price at the time of [the] transaction”—that it had price impact—is “Basic’s fundamental premise.” Halliburton I, 563 U. S., at ___ (slip op., at 7). It thus has everything to do with the issue of predominance at the class certification stage. That is

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why, if reliance is to be shown through the Basic presumption, the publicity and market efficiency prerequisites must be proved before class certification. Without proof of those prerequisites, the fraud-on-the-market theory underlying the presumption completely collapses, rendering class certification inappropriate.

But as explained, publicity and market efficiency are nothing more than prerequisites for an indirect showing of price impact. There is no dispute that at least such indirect proof of price impact “is needed to ensure that the questions of law or fact common to the class will ‘predominate.’ ” Amgen, 568 U. S., at ___ (slip op., at 10) (emphasis deleted); see id., at ___ (slip op., at 16–17). That is so even though such proof is also highly relevant at the merits stage.

Our choice in this case, then, is not between allowing price impact evidence at the class certification stage or relegating it to the merits. Evidence of price impact will be before the court at the certification stage in any event. The choice, rather, is between limiting the price impact inquiry before class certification to indirect evidence, or allowing consideration of direct evidence as well. As explained, we see no reason to artificially limit the inquiry at the certification stage to indirect evidence of price impact. Defendants may seek to defeat the Basic presumption at that stage through direct as well as indirect price impact evidence.

*  *  *

More than 25 years ago, we held that plaintiffs could satisfy the reliance element of the Rule 10b–5 cause of action by invoking a presumption that a public, material misrepresentation will distort the price of stock traded in an efficient market, and that anyone who purchases the stock at the market price may be considered to have done so in reliance on the misrepresentation. We adhere to that decision and decline to modify the prerequisites for invoking the presumption of reliance. But to maintain the consistency of the presumption with the class certification requirements of Federal Rule of Civil Procedure 23, defendants must be afforded an opportunity before class certification to defeat the presumption through evidence that an alleged misrepresentation did not actually affect the market price of the stock.

Because the courts below denied Halliburton that opportunity, we vacate the judgment of the Court of Appeals for the Fifth Circuit and remand the case for further proceedings consistent with this opinion.

It is so ordered.

TOP Concurrence

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Justice Ginsburg, with whom Justice Breyer and Justice Sotomayor join, concurring.

Advancing price impact consideration from the merits stage to the certification stage may broaden the scope of discovery available at certification. See Tr. of Oral Arg. 36–37. But the Court recognizes that it is incumbent upon the defendant to show the absence of price impact. See ante, at 17–18. The Court’s judgment, therefore, should impose no heavy toll on securities-fraud plaintiffs with tenable claims. On that understanding, I join the Court’s opinion.

Justice Thomas, with whom Justice Scalia and Justice Alito join, concurring in the judgment.

The implied Rule 10b–5 private cause of action is “a relic of the heady days in which this Court assumedcommon-law powers to create causes of action,” Correctional Services Corp. v. Malesko, 534 U. S. 61, 75 (2001) (Scalia, J., concurring); see, e.g., J. I. Case Co. v. Borak, 377 U. S. 426, 433 (1964) . We have since ended that practice because the authority to fashion private remedies to enforce federal law belongs to Congress alone. Stone-ridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U. S. 148, 164 (2008) . Absent statutory authorization for a cause of action, “courts may not create one, no matter how desirable that might be as a policy matter.” Alexander v. Sandoval, 532 U. S. 275–287 (2001).

Basic Inc. v. Levinson, 485 U. S. 224 (1988) , demonstrates the wisdom of this rule. Basic presented the question how investors must prove the reliance element of the implied Rule 10b–5 cause of action—the requirement that the plaintiff buy or sell stock in reliance on the defendant’s misstatement—when they transact on modern, impersonal securities exchanges. Were the Rule 10b–5 action statu-tory, the Court could have resolved this question by interpreting the statutory language. Without a statute to interpret for guidance, however, the Court began instead with a particular policy “problem”: for investors in impersonal markets, the traditional reliance requirement was hard to prove and impossible to prove as common among plaintiffs bringing 10b–5 class-action suits. Id., at 242, 245. With the task thus framed as “resol[ving]” that “ ‘problem’ ” rather than interpreting statutory text, id., at 242, the Court turned to nascent economic theory and naked intuitions about investment behavior in its efforts to fashion a new, easier way to meet the reliance requirement. The result was an evidentiary presumption, based on a “fraud on the market” theory, that paved the way for class actions under Rule 10b–5.

Today we are asked to determine whether Basic was correctly decided. The Court suggests that it was, and that stare decisis demands that we preserve it. I disagree. Logic, economic realities, and our subsequent jurisprudence have undermined the

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foundations of the Basic presumption, and stare decisis cannot prop up the façade that remains. Basic should be overruled.

I

Understanding where Basic went wrong requires an explanation of the “reliance” requirement as traditionally understood.

“Reliance by the plaintiff upon the defendant’s deceptive acts is an essential element” of the implied 10b–5 private cause of action. 1 Stoneridge, supra, at 159. To prove reliance, the plaintiff must show “ ‘transaction causation,’ ” i.e., that the specific misstatement induced “the investor’s decision to engage in the transaction.” Erica P. John Fund, Inc. v. Halliburton Co., 563 U. S. ___, ___–___ (2011) (slip op., at 6–7). Such proof “ensures that there is a proper ‘connection between a defendant’s misrepresentation and a plaintiff’s injury’ ”—namely, that the plaintiff has not just lost money as a result of the misstatement, but that he was actually defrauded by it. Id., at ___ (slip op., at 4); see also Dirks v. SEC, 463 U. S. 646–667, n. 27 (1983) (“[T]o constitute a violation of Rule 10b–5, there must be fraud. . . . [T]here always are winners and losers; but those who have ‘lost’ have not necessarily been defrauded”). Without that connection, Rule 10b–5 is reduced to a “ ‘scheme of investor’s insurance,’ ” because a plaintiff could recover whenever the defendant’s misstatement distorted the stock price—regardless of whether the misstatement had actually tricked the plaintiff into buying (or selling) the stock in the first place. Dura Pharmaceuticals, Inc. v. Broudo, 544 U. S. 336, 345 (2005) (quoting Basic, supra, at 252 (White, J., concurring in part and dissenting in part)).

The “traditional” reliance element requires a plaintiff to “sho[w] that he was aware of a company’s statement and engaged in a relevant transaction . . . based on that spe-cific misrepresentation.” Erica P. John Fund, supra, at ___ (slip op., at 4). But investors who purchase stock from third parties on impersonal exchanges (e.g., the New York Stock Exchange) often will not be aware of any particular statement made by the issuer of the security, and therefore cannot establish that they transacted based on a specific misrepresentation. Nor is the traditional reliance requirement amenable to class treatment; the inherently individualized nature of the reliance inquiry renders it impossible for a 10b–5 plaintiff to prove that common questions predominate over individual ones, making class certification improper. See Basic, supra, at 242; Fed. Rule Civ. Proc. 23(b)(3).

Citing these difficulties of proof and class certification, 485 U. S., at 242, 245, the Basic Court dispensed with the traditional reliance requirement in favor of a new one based on the fraud-on-the-market theory. 2 The new version of reliance had two related parts.

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First, Basic suggested that plaintiffs could meet the reliance requirement “ ‘indirectly,’ ” id., at 245. The Court reasoned that “ ‘ideally, [the market] transmits information to the investor in the processed form of a market price.’ ” Id., at 244. An investor could thus be said to have “relied” on a specific misstatement if (1) the market had incorporated that statement into the market price of the security, and (2) the investor then bought or sold that security “in reliance on the integrity of the [market] price,” id., at 247, i.e., based on his belief that the market price “ ‘reflect[ed]’ ” the stock’s underlying “ ‘value,’ ” id., at 244.

Second, Basic created a presumption that this “indirect” form of “reliance” had been proved. Based primarily on certain assumptions about economic theory and investor behavior, Basic afforded plaintiffs who traded in efficient markets an evidentiary presumption that both steps of the novel reliance requirement had been satisfied—that (1) the market had incorporated the specific misstatement into the market price of the security, and (2) the plaintiff did transact in reliance on the integrity of that price. 3 Id., at 247. A defendant was ostensibly entitled to rebut the presumption by putting forth evidence that either of those steps was absent. Id., at 248.

II

Basic’s reimagined reliance requirement was a mistake, and the passage of time has compounded its failings. First, the Court based both parts of the presumption of reliance on a questionable understanding of disputed economic theory and flawed intuitions about investor behavior. Second, Basic’s rebuttable presumption is at odds with our subsequent Rule 23 cases, which require plaintiffs seeking class certification to “ ‘affirmatively demonstrate’ ” certification requirements like the predominance of common questions. Comcast Corp. v. Behrend, 569 U. S. ___, ___ (2013) (slip op., at 5) (quoting Wal-Mart Stores, Inc. v. Dukes, 564 U. S. ___, ___ (2011) (slip op., at 10)). Finally, Basic’s presumption that investors rely on the integrity of the market price is virtually irrebuttable in practice, which means that the “essential” reliance element effectively exists in name only.

A

Basic based the presumption of reliance on two factual assumptions. The first assumption was that, in a “well-developed market,” public statements are generally “reflected” in the market price of securities. 485 U. S., at 247. The second was that investors in such markets transact “in reliance on the integrity of that price.” Ibid. In other words, the Court created a presumption that a plaintiff had met the two-part, fraud-on-the-market version of the reliance requirement because, in the Court’s view, “common sense and probability” suggested that each of those parts would be met. Id., at 246.

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In reality, both of the Court’s key assumptions are highly contestable and do not provide the necessary support for Basic’s presumption of reliance. The first assumption—that public statements are “reflected” in the market price—was grounded in an economic theory that hasgarnered substantial criticism since Basic. The second as-sumption—that investors categorically rely on the integrity of the market price—is simply wrong.

1

The Court’s first assumption was that “most publicly available information”—including public misstatements—“is reflected in [the] market price” of a security. Id., at 247. The Court grounded that assumption in “empirical studies” testing a then-nascent economic theory known as the efficient capital markets hypothesis. Id., at 246–247. Specifically, the Court relied upon the “semi-strong” version of that theory, which posits that the average investor cannot earn above-market returns (i.e., “beat the market”) in an efficient market by trading on the basis of publicly available information. See, e.g., Stout, The Mechanisms of Market Inefficiency: An Introduction to the New Finance, 28 J. Corp. L. 635, 640, and n. 24 (2003) (citing Fama, Efficient Capital Markets: A Review of Theory and Empirical Work, 25 J. Finance 383, 388 (1970)). 4 The upshot of the hypothesis is that “the market price of shares traded on well-developed markets [will] reflec[t] all publicly available information, and, hence, any material misrepresentations.” Basic, supra, at 246. At the time of Basic, this version of the efficient capital markets hypothesis was “widely accepted.” See Dunbar & Heller 463–464.

This view of market efficiency has since lost its luster. See, e.g., Langevoort, Basic at Twenty: Rethinking Fraud on the Market, 2009 Wis. L. Rev. 151, 175 (“Doubts about the strength and pervasiveness of market efficiency are much greater today than they were in the mid-1980s”). As it turns out, even “well-developed” markets (like the New York Stock Exchange) do not uniformly incorporate information into market prices with high speed. “[F]riction in accessing public information” and the presence of “processing costs” means that “not all public information will be impounded in a security’s price with the same alacrity, or perhaps with any quickness at all.” Cox, Understanding Causation in Private Securities Lawsuits: Building on Amgen, 66 Vand. L. Rev. 1719, 1732 (2013) (hereinafter Cox). For example, information that is easily digestible (merger announcements or stock splits) or especially prominent (Wall Street Journal articles) may be incorporated quickly, while information that is broadly applicable or technical (Securities and Exchange Commission filings) may be incorporated slowly or even ignored. See Stout, supra, at 653–656; see e.g., In re Merck & Co. Securities Litigation, 432 F. 3d 261, 263–265 (CA3 2005) (a Wall Street Journal article caused a steep decline in the company’s stock price even though the same information was contained in an earlier SEC disclosure).

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Further, and more importantly, “overwhelming empirical evidence” now suggests that even when markets do incorporate public information, they often fail to do so accurately. Lev and de Villiers, Stock Price Crashes and 10b–5 Damages: A Legal, Economic and Policy Analysis, 47 Stan. L. Rev. 7, 20–21 (1994); see also id., at 21 (“That many share price movements seem unrelated to specific information strongly suggests that capital markets are not fundamentally efficient, and that wide deviations from fundamentals . . . can occur”(footnote omitted)). “Scores” of “efficiency-defying anomalies”—such as market swings in the absence of new information and prolonged deviations from underlying asset values—make market efficiency “more contestable than ever.” Langevoort, Taming the Animal Spirits of the Stock Markets: A Behavioral Approach to Securities Regulation, 97 Nw. U. L. Rev. 135, 141 (2002); Dunbar & Heller 476–483. Such anomalies make it difficult to tell whether, at any given moment, a stock’s price accurately reflects its value as indicated by all publicly available information. In sum, economists now understand that the price impact Basic assumed would happen reflexively is actually far from certain even in “well-developed” markets. Thus, Basic’s claim that “common sense and probability” support a presumption of reliance rests on shaky footing.

2

The Basic Court also grounded the presumption of reliance in a second assumption: that “[a]n investor who buys or sells stock at the price set by the market does so in reliance on the integrity of that price.” 485 U. S., at 247. In other words, the Court assumed that investors transact based on the belief that the market price accurately reflects the underlying “ ‘value’ ” of the security. See id., at 244 (“ ‘[P]urchasers generally rely on the price of the stock as a reflection of its value’ ”). The Basic Court appears to have adopted this assumption about investment behavior based only on what it believed to be “common sense.” Id., at 246. The Court found it “ ‘hard to imagine that there ever is a buyer or seller who does not rely on market integrity. Who would knowingly roll the dice in a crooked crap game?’ ” Id., at 246–247.

The Court’s rather superficial analysis does not withstand scrutiny. It cannot be seriously disputed that a great many investors do not buy or sell stock based on a belief that the stock’s price accurately reflects its value. Many investors in fact trade for the opposite reason—that is, because they think the market has under- or overvalued the stock, and they believe they can profit from that mispricing. Id., at 256 (opinion of White, J.); see, e.g., Macey, The Fraud on the Market Theory: Some Preliminary Issues, 74 Cornell L. Rev. 923, 925 (1989) (The “opposite” of Basic’s assumption appears to be true; some investors “attempt to locate undervalued stocks in an effort to ‘beat the market’ . . . in essence betting that the market . . . is in fact inefficient”). Indeed, securities transactions often take place because the transacting parties disagree on the security’s value. See, e.g., Stout, Are Stock Markets Costly Casinos? Disagreement, Mar-ket Failure, and Securities Regulation, 81 Va.

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L. Rev.611, 619 (1995) (“[A]vailable evidence suggests that . . . in-vestor disagreement inspires the lion’s share of equities transactions”).

Other investors trade for reasons entirely unrelated to price—for instance, to address changing liquidity needs, tax concerns, or portfolio balancing requirements. See id., at 657–658; see also Cox 1739 (investors may purchase “due to portfolio rebalancing arising from its obeisance to an indexing strategy”). These investment decisions—made with indifference to price and thus without regard for price “integrity”—are at odds with Basic’s understanding of what motivates investment decisions. In short, Basic’s assumption that all investors rely in common on “price integrity” is simply wrong. 5

The majority tries (but fails) to reconcile Basic’s assumption about investor behavior with the reality that many investors do not behave in the way Basic assumed. It first asserts that Basic rested only on the more modest view that “ ‘most investors’ ” rely on the integrity of a security’s market price. Ante, at 12 (quoting not Basic, but Amgen Inc. v. Connecticut Retirement Plans & Trust Funds, 568 U. S. ___, ___ (2013) (slip op., at 5) (emphasis added)). That gloss is difficult to square with Basic’s plain language: “An investor who buys or sells stock at the price set by the market does so in reliance on the integrity of that price.” Basic, 458 U. S., at 247; see also id., at 246–247 (“ ‘[I]t is hard to imagine that there ever is a buyer or seller who does not rely on market integrity’ ”). In any event, neither Basic nor the majority offers anything more than a judicial hunch as evidence that even “most” investors rely on price integrity.

The majority also suggests that “there is no reason to suppose” that investors who buy stock they believe to be undervalued are “indifferent to the integrity of market prices.” Ante, at 12. Such “value investor[s],” according to the majority, “implicitly rel[y] on the fact that a stock’s market price will eventually reflect material information” and “presumably tr[y] to estimate how undervalued or overvalued a particular stock is” by reference to the market price. Ibid. Whether the majority’s unsupported claims about the thought processes of hypothetical investors are accurate or not, they are surely beside the point. Whatever else an investor believes about the market, he simply does not “rely on the integrity of the market price” if he does not believe that the market price accurately reflects public information at the time he transacts. That is, an investor cannot claim that a public misstatement induced his transaction by distorting the market price if he did not buy at that price while believing that it accurately incorporated that public information. For that sort of investor, Basic’s critical fiction falls apart.

B

Basic’s presumption of reliance also conflicts with our more recent cases clarifying Rule 23’s class-certification requirements. Those cases instruct that “a party seeking

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to maintain a class action ‘must affirmatively demonstrate his compliance’ with Rule 23.” Comcast, 569 U. S., at ___ (slip op., at 5) (quoting Wal-Mart, 564 U. S., at ___ (slip op., at 10). To prevail on a motion for class certification, a party must demonstrate through “evidentiary proof” that “ ‘questions of law or fact common to class members predominate over any questions affecting only individual members.’ ” 569 U. S., at ___ (slip op., at 5–6) (quoting Fed. Rule Civ. Proc. 23(b)(3)).

Basic permits plaintiffs to bypass that requirement of evidentiary proof. Under Basic, plaintiffs who invoke the presumption of reliance (by proving its predicates) are deemed to have met the predominance requirement of Rule 23(b)(3). See ante, at 14; Amgen, supra, at ___ (slip op., at 6) (Basic “facilitates class certification by recognizing a rebuttable presumption of classwide reliance”); Basic, 485 U. S., at 242, 250 (holding that the District Court appropriately certified the class based on the presumption of reliance). But, invoking the Basic presumption does not actually prove that individual questions of reliance will not overwhelm the common questions in the case. Basic still requires a showing that the individual investor bought or sold in reliance on the integrity of the market price and, crucially, permits defendants to rebut the presumption by producing evidence that individual plaintiffs do not meet that description. See id., at 249 (“Petitioners . . . could rebut the presumption of reliance as to plaintiffs who would have divested themselves of their Basic shares without relying on the integrity of the market”). Thus, by its own terms, Basic entitles defendants to ask each class member whether he traded in reliance on the integrity of the market price. That inquiry, like the traditional reliance inquiry, is inherently individualized; questions about the trading strategies of individual investors will not generate “ ‘common answers apt to drive the resolution of the litigation,’ ” Wal-Mart Stores, supra, at ___ (slip op., at 10). See supra, at 8–9; see also Cox 1736, n. 55 (Basic’s recognition that defendants could rebut the presumption “by proof the investor would have traded anyway appears to require individual inquiries into reliance”).

Basic thus exempts Rule 10b–5 plaintiffs from Rule 23’s proof requirement. Plaintiffs who invoke the presumption of reliance are deemed to have shown predominance as a matter of law, even though the resulting rebuttable presumption leaves individualized questions of reliance in the case and predominance still unproved. Needless to say, that exemption was beyond the Basic Court’s power to grant. 6

C

It would be bad enough if Basic merely provided an end-run around Rule 23. But in practice, the so-called “rebuttable presumption” is largely irrebuttable.

The Basic Court ostensibly afforded defendants an opportunity to rebut the presumption by providing evidence that either aspect of a plaintiff’s fraud-on-the-market reliance—price impact, or reliance on the integrity of the market price—is missing. 485 U. S., at 248–249. As it turns out, however, the realities of class-action

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procedure make rebuttal based on an individual plaintiff’s lack of reliance virtually impossible. At the class-certification stage, rebuttal is only directed at the class representatives, which means that counsel only needs to find one class member who can withstand the challenge. See Grundfest, Damages and Reliance Under Section 10(b) of the Exchange Act, 69 Bus. Lawyer 307, 362 (2014). After class certification, courts have refused to allow defendants to challenge any plaintiff’s reliance on the integrity of the market price prior to a determination on classwide liability. See Brief for Chamber of Commerce of the United States of America et al. as Amici Curiae 13–14 (collecting cases rejecting postcertification attempts to rebut individual class members’ reliance on price integrity as not pertinent to classwide liability). One search for rebuttals on individual-reliance grounds turned up only six cases out of the thousands of Rule 10b–5 actions brought since Basic. Grundfest, supra, at 360. 7

The apparent unavailability of this form of rebuttal has troubling implications. Because the presumption is conclusive in practice with respect to investors’ reliance on price integrity, even Basic’s watered-down reliance requirement has been effectively eliminated. Once the presumption attaches, the reliance element is no longer an obstacle to prevailing on the claim, even though many class members will not have transacted in reliance on price integrity, see supra, at 8–9. And without a func-tional reliance requirement, the “essential element” that ensures the plaintiff has actually been defrauded, see Stoneridge, 552 U. S., at 159, Rule 10b–5 becomes the very “ ‘scheme of investor’s insurance’ ” the rebuttable presumption was supposed to prevent. See Basic, supra, at 252 (opinion of White, J.). 8

*  *  *

For these reasons, Basic should be overruled in favor of the straightforward rule that “[r]eliance by the plaintiff upon the defendant’s deceptive acts”—actual reliance, not the fictional “fraud-on-the-market” version—“is an essential element of the §10(b) private cause of action.” Stone-ridge, 552 U. S., at 159.

III

Principles of stare decisis do not compel us to save Basic’s muddled logic and armchair economics. We have not hesitated to overrule decisions when they are “unworkable or are badly reasoned,” Payne v. Tennessee, 501 U. S. 808, 827 (1991) ; when “the theoretical underpinnings of those decisions are called into serious question,” State Oil Co. v. Khan, 522 U. S. 3, 21 (1997) ; when the decisions have become “irreconcilable” with intervening developments in “competing legal doctrines or policies,” Patterson v. McLean Credit Union, 491 U. S. 164, 173 (1989) ; or when they are otherwise “a positive detriment to coherence and consistency in the law,” ibid. Just one of these circumstances can justify our correction of bad precedent; Basic checks all the boxes.

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In support of its decision to preserve Basic, the majority contends that stare decisis “has ‘special force’ ‘in respect to statutory interpretation’ because ‘Congress remains free to alter what we have done.’ ” Ante, at 12 (quoting John R. Sand & Gravel Co. v. United States, 552 U. S. 130, 139 (2008) ; some internal quotation marks omitted). But Basic, of course, has nothing to do with statutory interpretation. The case concerned a judge-made evidentiary presumption for a judge-made element of the implied 10b−5 private cause of action, itself “a judicial construct that Congress did not enact in the text of the relevant statutes.” Stoneridge, supra, at 164. We have not afforded stare decisis “special force” outside the context of statu-tory interpretation, see Michigan v. Bay Mills Indian Community, 572 U. S. ___, ___, n. 6 (2014) (Thomas, J. dissenting) (slip op., at 15, n. 6 and for good reason. In statutory cases, it is perhaps plausible that Congress watches over its enactments and will step in to fix our mistakes, so we may leave to Congress the judgment whether the interpretive question is better left “ ‘settled’ ” or “ ‘settled right,’ ” Square D Co. v. Niagara Frontier Tariff Bureau, Inc., 476 U. S. 409, 424 (1986) . But this rationale is untenable when it comes to judge-made law like “implied” private causes of action, which we retain a duty to superintend. See, e.g., Exxon Shipping Co. v. Baker, 554 U. S. 471, 507 (2008) (“[T]he judiciary [cannot] wash its hands of a problem it created . . . simply by calling [the judicial doctrine] legislative”). Thus, when we err in areas of judge-made law, we ought to presume that Congress expects us to correct our own mistakes—not the other way around. That duty is especially clear in the Rule 10b–5 context, where we have said that “[t]he federal courts have accepted and exercised the principal responsibility for the continuing elaboration of the scope of the 10b–5 right and the definition of the duties it imposes.” Musick, Peeler & Garrett v. Employers Ins. of Wausau, 508 U. S. 286, 292 (1993) .

Basic’s presumption of reliance remains our mistake to correct. Since Basic, Congress has enacted two major securities laws: the Private Securities Litigation Reform Act of 1995 (PSLRA), 109Stat. 737, and the Securities Litigation Uniform Standards Act of 1998 (SLUSA), 112Stat. 3227. The PSLRA “sought to combat perceived abuses in securities litigation,” ante, at 15, and SLUSA prevented plaintiffs from avoiding the PSLRA’s restrictions by bringing class actions in state court, ibid. Neither of these Acts touched the reliance element of the implied Rule 10b–5 private cause of action or the Basic presumption.

Contrary to respondent’s argument (the majority wisely skips this next line of defense), we cannot draw from Congress’ silence on this matter an inference that Congress approved of Basic. To begin with, it is inappropriate to give weight to “Congress’ unenacted opinion” when construing judge-made doctrines, because doing so allows the Court to create law and then “effectively codif[y]” it “based only on Congress’ failure to address it.” Bay Mills, supra, at ___ (Thomas, J., dissenting) (slip op., at 14). Our Constitution, however, demands that laws be passed by Congress and signed by the President. U. S. Const., Art. I, §7. Adherence to Basic based on congressional inaction would invert that requirement by insulating error from

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correction merely because Congress failed to pass a law on the subject. Cf. Patterson, supra, at 175, n. 1 (“Congressional inaction cannot amend a duly enacted statute”).

At any rate, arguments from legislative inaction are speculative at best. “[I]t is ‘ “impossible to assert with any degree of assurance that congressional failure to act represents” affirmative congressional approval of’ one of this Court’s decisions.” Bay Mills, supra, at ___ (Thomas, J., dissenting) (slip op., at 13) (quoting Patterson, supra, at 175, n. 1). “ ‘Congressional inaction lacks persuasive significance’ ” because it is indeterminate; “ ‘several equally tenable inferences may be drawn from such inaction.’ ” Central Bank of Denver, N. A. v. First Interstate Bank of Denver, N. A., 511 U. S. 164, 187 (1994) (quoting Pension Benefit Guaranty Corporation v. LTV Corp., 496 U. S. 633, 650 (1990) ). Therefore, “[i]t does not follow . . . that Congress’ failure to overturn a . . . precedent is reason for this Court to adhere to it.” Patterson, supra, at 175, n. 1.

That is especially true here, because Congress passed a law to tell us not to draw any inference from its inaction. The PSLRA expressly states that “[n]othing in this Act . . . shall be deemed to create or ratify any implied private right of action.” Notes following 15 U. S. C. §78j–1, p. 430. If the Act did not ratify even the Rule 10b–5 private cause of action, it cannot be read to ratify sub silentio the presumption of reliance this Court affixed to that action. Further, the PSLRA and SLUSA operate to curtail abuses of various private causes of action under our securities laws—hardly an indication that Congress approved of Basic’s expansion of the 10b–5 private cause of action. Congress’ failure to overturn Basic does not permit us to “place on the shoulders of Congress the burden of the Court’s own error.” Girouard v. United States, 328 U. S. 61, 70 (1946) .

*  *  *

Basic took an implied cause of action and grafted on a policy-driven presumption of reliance based on nascent economic theory and personal intuitions about investment behavior. The result was an unrecognizably broad cause of action ready made for class certification. Time and experience have pointed up the error of that decision, making it all too clear that the Court’s attempt to revise securities law to fit the alleged “new realities of financial markets” should have been left to Congress. 485 U. S., at 255 (opinion of White, J.).

Notes

1 As the private Rule 10b–5 action has evolved, the Court has drawn on the common-law action of deceit to identify six elements a private plaintiff must prove: “ ‘(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection

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between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.’ ” Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, 568 U. S. ___, ___–___ (2013) (slip op., at 3–4).

2 In the years preceding Basic, lower courts and commentators experimented with various ways to facilitate 10b–5 class actions by relaxing or eliminating the reliance element of the implied 10b–5 action. See, e.g., Blackie v. Barrack, 524 F. 2d 891 (CA9 1975); Note, The Fraud-on-the-Market Theory, 95 Harv. L. Rev. 1143 (1982); Note, The Reliance Requirement in Private Actions under SEC Rule 10b–5, 88 Harv. L. Rev. 584, 592–606 (1975). The “fraud-on-the-market theory” is an umbrella term for those varied efforts. Black, Fraud on the Market: A Criticism of Dispensing with Reliance Requirements in Certain Open Market Transactions, 62 N. C. L. Rev. 435, 439–457 (1984).

3 An investor could invoke this presumption by demonstrating certain predicates: (1) a public statement; (2) an efficient market; (3) that the shares were traded after the statement was made but before the truth was revealed; and (4) that the statement was material. Basic, 485 U. S., at 248, n. 27.

4 The “weak form” of the hypothesis provides that an investor cannot earn an above-market return by trading on historical price data. See Dunbar & Heller, Fraud on the Market Meets Behavioral Finance, 31 Del. J. Corporate L. 455, 463–464 (2006) (hereinafter Dunbar & Heller). The “strong form” provides that investors cannot achieve above-market returns even by trading on nonpublic information. See ibid. The weak form is generally accepted; the strong form is not. See ibid.

5 The Basic Court’s mistaken intuition about investor behavior appears to involve a category mistake: the Court invoked a hypothesis meant to describe markets, but then used it “in the one way it is not meant to be used: as a predictor of the behavior of individual investors.” Langevoort, Theories, Assumptions, and Securities Regulation: Market Efficiency Revisited, 140 U. Pa. L. Rev. 851, 895 (1992). The efficient capital markets hypothesis does not describe “how investors behave; [it] only suggests the consequences of their collective behavior.” Cox 1736. “Nothing in the hypothesis denies what most popular accounts assume: that much information searching and trading by investors, from institutions on down, is done in the (perhaps erroneous) belief that undervalued or overvalued stocks exist and can systematically be discovered.” Langevoort, Theories, supra, at 895.

6 The majority suggests that Basic squares with Comcast Corp. v. Behrend, 569 U. S. ___ (2013), and Wal-Mart Stores, Inc. v. Dukes, 564 U. S. ___ (2011), because it does not “relieve plaintiffs of the burden of proving . . . predominance” but “rather sets forth what they must prove to demonstrate such predominance.” Ante, at 14–15. This argument misses the point. Because Basic offers defendants a chance to rebut the

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presumption on individualized grounds, the predicates that Basic sets forth as sufficient to invoke the presumption do not necessarily prove predominance.

7 The absence of postcertification rebuttal is likely attributable in part to the substantial in terrorem settlement pressures brought to bear by certification. See, e.g., Nagareda, Class Certification in the Age of Aggregate Proof, 84 N. Y. U. L. Rev. 97, 99 (2009) (“With vanishingly rare exception, class certification sets the litigation on a path toward res-olution by way of settlement, not full-fledged testing of the plaintiffs’ case by trial”); see also Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U. S. 148, 163 (2008) (“[E]xtensive discovery andthe potential for uncertainty and disruption in a lawsuit allow plaintiffs with weak claims to extort settlements from innocent companies”).

8 Of course, today’s decision makes clear that a defendant may rebut the presumption by producing evidence that the misstatement at issue failed to affect the market price of the security, see ante, at 17–22. But both parts of Basic’s version of reliance are key to its fiction that an investor has “indirectly” relied on the misstatement; the unavailability of rebuttal with respect to one of those parts still functionally removes reliance as an element of proof.

十三、

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