An investor purchases Apple common stock in reliance on representations in advertisements that the new iPad is capable of connecting to “ultrafast” 4G wireless networks. It turns out that the iPad is not compatible with the fastest wireless network in Australia or the 4G networks in Sweden and Germany. If the investor suffered a loss as a result, can the investor recover from Apple for securities fraud under Rule 10b-5 of the Securities Exchange Act of 1934? A number of possible impediments to recovery exist. One is Rule 10b-5’s limited scope. The Rule applies only to a fraud that is “in connection with” a securities transaction, and whether a false or misleading statement primarily directed to consumers has the requisite connection is an open question.This Article evaluates Rule 10b-5’s “in connection with” requirement as it relates to product advertisements and concludes that false or misleading statements in advertisements are actionable under the Rule. The Article also suggests that, to determine whether a particular advertisement meets the “in connection with” requirement, courts should look to factors considered in determining whether an advertisement is an “offer” under the Securities Act of 1933.
Thomas J. Maloney,
Beyond the Target Market: Product Advertising and Rule 10B-5's in Connection with Requirement
61 Clev. St. L. Rev.
available at https://engagedscholarship.csuohio.edu/clevstlrev/vol61/iss1/5