Berner (plaintiff) purchased large quantities of over-the-counter stock in T. O. N. M. Oil & Gas Exploration Corporation (TONM) through Charles Lazzaro, a registered securities broker for Bateman Eichler, Hill Richards, Inc. (Bateman) (defendant). Berner admitted that he had purchased TONM stock on the premise that Lazzaro was privy to certain information that was not otherwise generally available. Berner filed an action, alleging that he had incurred substantial losses as a result of a conspiracy between Lazzaro and the president of TONM to induce the sale of TONM stock. Specifically, Berner alleged that Lazzaro claimed to know TONM insiders and to have learned that TONM was engaged in negotiations to form a joint venture in mining Surinamese gold due to the discovery of vast amounts of gold in that area. Lazzaro also claimed that TONM stock would potentially rise from $1.50 per share to $100 per share within a year. Berner claimed that Bateman knew the insider information was false and therefore committed a violation of § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 of the Securities and Exchange Commission, 17 C.F.R. § 240.10b-5. In the action, Berner sought capital losses, lost profits, punitive damages, costs, and attorney’s fees. The district court dismissed the action, and Berner appealed. The court of appeals reversed in favor of Berner. Bateman appealed, and the United States Supreme Court granted certiorari.