Supreme Court Firmly Accepts Rule 10b-5 Private Right of Action

The US Supreme Court may never squarely decide if there is an implied private right of action under Rule 10b-5. I believe that the closest we have gotten to an affirmation of such an implied right of action is Justice Marshall’s statement in Herman & MacLean v. Huddleston (CCH Fed. Sec. L. Rep. ¶99,058) in 1983 that the existence of an implied private right of action under Rule 10b-5 is ``simply beyond peradventure.’’(that is a great phrase)

In an amicus brief filed with the Supreme Court in the Charter Communications case, a group of eminent law professors said that, when it passed the Private Securities Litigation Reform Act in 1995, with all of its procedural and substantive standards for private suits, Congress effectively made the private right of action explicit. I agree with that statement.

If I may be permitted to reason by analogy, I also believe that the recent Supreme Court ruling in the Tellabs case (CCH Fed. Sec. L. Rep. ¶94,335), with its intricate examination of how to plead a strong inference of scienter, demonstrates that the Court has essentially accepted the implied private right of action under Rule 10b-5. Scienter is a very critical element of Rule 10b-5. Unless the Court accepted that there is an implied private right of action under Rule 10b-5, it would be a futility to devote an entire opinion to how to state a strong inference of scienter in a private Rule 10b-5 action.

Further, and importantly, Justice Ginsburg begins the Tellabs opinion by stating that the Court has long recognized that meritorious private actions to enforce federal antifraud securities laws are an essential supplement to criminal prosecutions and civil enforcement actions brought by the DOJ and the SEC. In my view, this is a strong affirmation that there is an implied private right of action under Rule 10b-5.