The muddled duty to disclose under rule 10b-5

In recent years, courts have struggled with the affirmative duty to disclose in private securities litigation, particularly under Rule 10b-5. This Article survey a series of "muddles" in the law of securities fraud-relating to obligations pursuant to SEC line-item requirements, fiduciary duties, issuer sales and repurchases, prior and contemporaneous disclosure and the remnants. of 'flexible duty" analysis-to show how courts became confused and what the. consequence of that confusion has been. In general, this confusion reflects a combination of ambiguous signals from the Supreme Court and judicial disagreement about what the normative basis is for thinking through hard "duty" problems. On the latter, this Article distinguishes between two plausible theories for answering duty questions-a "tort-type" approach that simply asks whether a reasonable investor would likely be misled by the nondisclosure, and a "property-type" approach that more aggressively creates expectations on which investors can rely. It ends with a set of suggestions for simplifying the problems in the case law. To this end, the Article suggests that insider trading reasoning and dicta be confined to that specific subject and not readily applied to other kinds of disclosure questions. It urges that issuer disclosure questions be addressed in a "tort-type" fashion, essentially leaving this body of law to the SEC to address by rule if more aggressive informational entitlements are appropriate. It contends that SEC line-item requirements do create a duty to disclose under Rule 10b-5. And it argues that the "flexible duty" approach retains vitality. Finally, connecting to concerns raised by others in this Symposium, it shows that concerns about private securities litigation abuse have contributed to some of the law's confusion, creating an unfortunate legacy even after Congress intervened to resolve those problems by other means.