Federal securities litigation

This page is Part I of the federal section. Part II covers the SEC rulebook — II. Key SEC Rules and Regulations.

I. Federal Securities Litigation

Rule 10b-5 (Section 10(b)). The core private fraud claim: a material misstatement or omission, made with scienter, in connection with a purchase or sale, relied upon, causing economic loss. Unlike the state regimes, intent or recklessness must be proven.
Securities Act Sections 11 and 12(a)(2). False or misleading registration statements and prospectuses carry their own liability — close to strict for the issuer under Section 11, with a due-diligence defense for others.
The PSLRA. Fraud must be pleaded with particularity and with facts giving a strong inference of scienter; forward-looking statements with meaningful cautionary language may be shielded, which is why projections are hard to attack and omissions are often the stronger theory.
Control-person liability (Section 20(a)). Those who control a primary violator can be liable, subject to a good-faith defense.
Loss causation and reliance. A plaintiff must tie the loss to the revelation of the concealed truth, not merely to a bad outcome; reliance may be presumed through fraud-on-the-market for securities in an efficient market.
Deadlines (28 U.S.C. 1658(b)). A 10b-5 claim must be filed within two years of discovering the facts and never more than five years after the violation — a repose period concealment does not toll.

Scienter is the price of federal reach. Federal law lets you reach a public-market defendant without privity and often with a presumption of reliance, but you must plead particular facts suggesting the defendant knew or was reckless.
Offering cases have a lighter standard. If your loss traces to a registration statement or prospectus, Sections 11 and 12 do not require scienter against the issuer.
The five-year wall is applied strictly. Even perfect concealment does not extend the repose period.

Control-person exposure follows the board seat. Section 20(a) can reach a fund or its principals who control a portfolio issuer that commits a primary violation; the good-faith defense rewards documented oversight.
Private placements still answer to 10b-5. The rule applies to private and secondary transactions, not just public offerings.
SLUSA can pull you into federal court. It can preclude certain state-law securities class actions, channeling disputes into the federal framework.

The Advisors Act imposes a fiduciary duty. Section 206 of the Investment Advisors Act of 1940 is an antifraud provision read to impose a federal fiduciary duty — to disclose conflicts and act in the client's interest — independent of any sale.
Disclosure of conflicts is the core defense. Undisclosed compensation and conflict arrangements are the recurring theme in advisor enforcement.
Enforcement runs on its own track. The SEC can proceed without any private plaintiff, and its remedies are separate from investor recovery.

Federal law's hurdles are the defense's leverage, and most dismissals turn on them rather than on the underlying facts.

Scienter must be pleaded with particularity and a strong inference; conclusory allegations of intent are the most common ground for dismissal under the PSLRA.
The forward-looking-statement safe harbor shields projections accompanied by meaningful, tailored cautionary language.
Loss causation requires the loss to trace to the revelation of the concealed truth, not to a market decline or a disappointing result.
The fraud-on-the-market presumption of reliance can be rebutted with evidence of an inefficient market or an absence of price impact.