Bart and his brother-in-law, Ted, owned a small corporation. Ted was basically an investor, and Bart ran the entire business. As Ted became increasingly remote from day-to-day operations, Bart began to falsify some records so that Bart could take a
greater share of the profits. This continued for years with Bart mailing falsified financial statements to Ted. When Bart suddenly became ill, Ted was forced to assume a greater role in the business on a temporary basis. During this time, Ted discovered the past deceptions and sued Bart under Rule l0b-5 of the Securities Exchange Act of 1934. Bart defended on the procedural ground that the business was local and had never been involved in interstate transactions of any kind. Moreover, the corporation was not listed on any stock exchange, nor did it have assets in excess of $10 million or 500 or more shareholders. Comment on the outcome of this case.
?Bart will be held liable because the rule applies to all securities, registered or not, provided use is made of the mails for interstate commerce. The assets of and number of shareholders in the corporation have no bearing on the outcome of this case. Under Rule 10b-5, a civil action for damages may be brought by any private investor who purchased or sold a security and was injured because of false, misleading, or undisclosed information.
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Which of the following is true about the relationship between the registration statement and the
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