To: Roger A. Babb who wrote (5149 ) 3/18/1998 12:56:00 AM From: Shoe Read Replies (1) | Respond to
Roger and all, it is not correct to say there is "no law against hype or outright falsehoods in support of a stock except by insiders." For example, Rule 10b-5 under the Securities Exchange Act of 1934, comparable provisions of state securities law, mail and wire fraud statutes, and the common law of fraud and negligent misrepresentation, all can reach those who are not insiders. Under Rule 10b-5 any false or misleading statement by anyone "in connection with" the purchase or sale of a security may be actionable. Obvious cases are brokers, dealers, investment advisers, and accountants, but others may be liable as well -- not only for outright falsehoods but also for truthful statements that are so incomplete as to be misleading, or for predictions without reasonable grounds, for example. Granted, negative comments involve the additional risk of actions by the affected companies on grounds of defamation or related theories. Even the expression of opinions may be alleged to imply the existence of facts that would support them. I agree that the truthfulness of a statement, even if demonstrable, is not a guarantee against liability; however, the First Amendment and common law provide substantial protection for truthful statements, even if negative, where the speaker does not have a duty to maintain the information secret, and does not omit facts necessary under the circumstances to make the statements not misleading.
