The U.S. Supreme Court has long endorsed a broad view of the “in connection with” requirement for civil actions under §10(b) of the Securities Exchange Act to include conduct that “coincides with” securities transactions even where those transactions are not the object of the fraudulent scheme. SEC v Zandford, 535 U.S. 813, 822 (2002). We have previously written about the trend to expand Zandford’s flexible standard to envelop cases seemingly going beyond effecting the remedial purposes of the Exchange Act.1
A recent Fourth Circuit case2 tests the outer boundaries of Zandford’s flexible standard in the context of an e-mail blast from a publisher of online investor newsletters where neither the author nor publisher traded in the securities at issue nor owed fiduciary duties to its readership. SEC v. Pirate Investor LLC, 2009 WL 2949091 (4th Cir. Sept. 15, 2009). Concerned by the lower court’s decision, Forbes and other publishers submitted a brief as amici to overturn it. Discarding or stretching most established factors previously used to test the required connection between a fraud and a securities transaction, the U.S. Court of Appeals for the Fourth Circuit affirmed the §10(b) violation here, and dismissed the First Amendment concerns of the amici concluding the speech here was fraudulent speech not entitled to First Amendment protection.
The ‘Pirate’ Decision
