U.S. Securities Law rule (regulation) promulgated in 1948 under the Securities Exchange Act of 1934. Rule 10b-5 contains a sweeping prohibition of all forms of deceptive conduct in connection with buying or selling securities. Because of the very broad definition of a “security” in the Act, this means that a broad array of deceptive or misleading statements when raising funds for businesses or selling shares or bonds can be treated as a securities violation.
The exact language of Rule 10b-5 is:
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,
1. To employ any device, scheme, or artifice to defraud,
2. To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
3. To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
in connection with the purchase or sale of any security.
Rule 10b-5 has been supplemented by Rules 10b5-1 and 10b5-2 to encompass share dealings using “material non-public information,” i.e., insider trading.