Brief Fact Summary. Plaintiff, Robert Deutschman, was a purchaser of call options, including options in the stock of Defendant corporation, Beneficial Corp. Plaintiff sought standing to bring an action against Beneficial and its CEO and CFO for misrepresentations that they made.
Synopsis of Rule of Law. There is no transactional nexus requirement to achieve standing in a suit under a section 10(b) affirmative misrepresentation case, which would therefore give option traders standing.
The virtue of the Birnbaum rule, simply stated, in this situation, is that it limits the class of plaintiffs to those who have at least dealt in the security to which the prospectus, representation, or omission relates.View Full Point of Law
Issue. The issue is whether an option trader, who is not trading in the actual stock of a company, has standing to sue under Section 10(b) for misrepresentations.
Held. The United States Court of Appeals for the Third Circuit held that Plaintiff met all of the requirements of Section 10(b) and therefore had standing to bring an action against Defendants. The court believed that the rule was meant to have a broad scope of any type of security held in Defendant corporation. The court did not want to determine which types of security merit protection over other types. Defendants argued that option trading was more akin to gambling, or less valuable to commerce, but the court disagreed.
Discussion. The court clarified that this case is specific to affirmative misrepresentations. Defendants could have avoided this if they would have avoided making any public comments regarding the health of their company.