Rule 10b-5
The SEC rule prohibiting fraud, misrepresentation, and deceptive practices in securities transactions.
What is Rule 10b-5?
Rule 10b-5, promulgated by the SEC under Section 10(b) of the Securities Exchange Act of 1934, is the primary federal anti-fraud provision governing securities markets. It makes it unlawful for any person, in connection with the purchase or sale of any security, to employ any device, scheme, or artifice to defraud; to make any untrue statement of a material fact or omit a material fact necessary to make statements not misleading; or to engage in any act, practice, or course of business that operates as a fraud or deceit. Rule 10b-5 forms the legal basis for most SEC enforcement actions and private civil lawsuits involving securities fraud, insider trading, market manipulation, and material misrepresentation in public disclosures.
Example
In SEC v. Texas Gulf Sulphur Co. (1968), a landmark Rule 10b-5 case, company insiders purchased stock after learning of a major mineral discovery but before public disclosure. The Second Circuit ruled this violated Rule 10b-5 because insiders traded on material nonpublic information — establishing the misappropriation theory of insider trading liability that remains the foundation of insider trading enforcement today.