Wellpoint Class Action

Securities Exchange Act of 1934

The Securities Exchange Act of 1934 is a law governing what is and is not legal in the secondary trading of securities (stocks, bonds, and debentures). The Act, 48 Stat. 881 (June 6, 1934), codified at 15 U.S.C. § 78a et seq., was a sweeping piece of legislation. The Act and related statutes form the basis of regulation of the financial markets and their participants in the United States. It is commonly referred to as the "Exchange Act", the "'34 Act", and the "Act of '34".

Companies raise billions of dollars by issuing securities in what is known as the primary market. Contrasted with the Securities Act of 1933, which regulates these original issues, the Securities Exchange Act of 1934 regulates the secondary trading of those securities between persons often unrelated to the issuer. Trillions of dollars are made and lost each year through trading in the secondary market.

While the '33 Act contains an antifraud provision (Section 17), when the '34 Act was enacted, questions remained about the reach of that antifraud provision and whether a private right of action existed for purchasers (meaning that ordinary people, and not just the government, could maintain a lawsuit against the bad actor). As it developed, section 10(b) of the 1934 Act and SEC Rule 10b-5 have sweeping antifraud language. Section 10(b) of the Act (as amended) provides (in 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, or any securities-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act), 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.

Section 10(b) is codified at 15 U.S.C. § 78j(b).

It's hard to overstate the breadth and utility of section 10(b,) and Rule 10b-5, in the pursuit of securities litigation. Rule 10b-5 has been employed to cover insider trading cases, but has also been used against companies for price fixing (artificially inflating or depressing stock prices through stock manipulation), bogus company sales to increase stock price, and even a company's failure to communicate relevant information to investors. Many plaintiffs in the securities litigation field plead violations of section 10(b) and Rule 10b-5 as a "catchall" allegation, in addition to violations of the more specific antifraud provisions in the '34 Act.

Source: Wikipedia
Other links: Securities Exchange Act of 1934

04.23.2008.