What does 17 CFR 240.10b-5 prohibit regarding manipulative and deceptive devices in connection with the purchase or sale of securities? Answer in under 100 words.

Details / How it works

SEC Rule 10b-5, promulgated under Section 10 of the Securities Exchange Act of 1934, prohibits three categories of conduct: (a) employing any device, scheme, or artifice to defraud; (b) making any untrue statement of a material fact or omitting a material fact necessary to make statements not misleading; and (c) engaging in any act, practice, or course of business that operates as a fraud or deceit. The rule applies to any person acting in connection with the purchase or sale of a security, using interstate commerce, the mails, or any national securities exchange facility. For criminal and private claims, plaintiffs must typically prove scienter (intent to deceive).

Numbers & thresholds

Exceptions & edge cases

The rule's prohibition extends to any person, including corporations, partnerships, and other legal entities, and covers conduct even if not technically a 'sale' or 'purchase' under other rules. Secondary actors (accountants, lawyers, corporate officers) who knowingly assist in fraud can be liable. The rule applies regardless of whether the transaction occurs on an exchange or over the counter, as long as interstate commerce or the mails are used.