Herman & MacLean v. Huddleston

459 U.S. 375 (1983)

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Herman & MacLean v. Huddleston

United States Supreme Court
459 U.S. 375 (1983)

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  • Written by Kelly Simon, JD

Facts

In 1969, Texas International Speedway, Inc. (TIS) filed a registration statement and prospectus with the Securities and Exchange Commission. TIS intended to offer securities valued at over $4 million for public sale in order to finance the construction of an automobile racetrack. The entire issue of securities was sold on its offering date in October 1969. A little over a year later, TIS filed for bankruptcy. Ralph Huddleston along with other investors (collectively, Huddleston) (plaintiffs) filed suit against most of the participants in the TIS offering, including Herman & MacLean (defendant), the accounting firm for the offering. Huddleston alleged that Hermann & MacLean and others had fraudulently misrepresented material facts regarding TIS, the company’s financial condition, and the costs of building a raceway. The district court found for Huddleston, determining that Herman & MacLean and others had violated § 10(b) of the Securities Exchange Act of 1934 (the 1934 act) and SEC Rule 10b-5. On appeal, the United States Court of Appeals for the Fifth Circuit held that an implied cause of action under SEC Rule 10b-5 could be maintained even if the fraudulent conduct was also prescribed by the express provisions of § 11 of the Securities Act of 1933 (the 1993 act). Herman & MacLean appealed.

Rule of Law

Issue

Holding and Reasoning (Marshall, J.)

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Casebooks

Securities Regulation

Key Terms

  • SEC Rule 10b-5Rule promulgated by the Securities and Exchange Commission that prohibits fraud in any transaction to buy or sell securities.
  • Section 11 of the Securities Act of 1933A section of the Securities Act of 1933 giving standing to any person who acquired a security to bring suit for a material untrue statement or omission in the registration statement filed with the Securities and Exchange Commission.
  • Securities Exchange Act of 1934[15 U.S.C. § 78a et seq.] Also referred to as the Exchange Act, major federal legislation governing securities trading in the secondary market and creating the Securities and Exchange Commission.
  • Cause of ActionA set of facts that allows a party to seek remedies from another party.
  • Securities Act of 1933[15 U.S.C. § 77a et seq.] The first major federal legislation to regulate the offer and sale of securities. Pursuant to this Act, any offer or sale of securities using the means and instrumentalities of interstate commerce must be registered with the Securities and Exchange Commission.
  • Section 10(b) of the Securities Exchange Act of 1934Provides that it is unlawful for any person to employ manipulative or deceptive conduct in connection with a purchase or sale of any security.

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