Brief Fact Summary. The Securities and Exchange Commission (Defendant) suspended Hanly and four other securities dealers (Plaintiff) from partaking in the securities field for making outrageously optimistic calculations about an investment based only information provided by the issuer.
Synopsis of Rule of Law. Making ignorant calculations about an investment may bar a securities dealer from partaking in the securities market.
Issue. Can making ignorant securities calculations about an investment potentially bar a securities dealer from partaking in the securities market?
Held. (Timbers, J.) Yes. Making ignorant securities calculations about an investment may bar a securities dealer from partaking in the securities market. Salesmen and brokers are obligated to be erudite regarding the securities they sell, this includes examining claims made by an issuer. Carelessly accepting commendations offered by sales literature is prohibited. This obligation ascends out of the exclusive bond between broker and purchaser. In this case, salespeople lacking ample information in which to make recommendations, made them anyway, which is a blatant violation of duty. Affirmed.
Discussion. Violations of Rule 10b-5 require scienter and merely erroneous information does not meet that requirement. Oftentimes, blind failure to research preceding recommendation is the type of situation where a 10b-5 violation would occur.