Birnbaum v. Newport Steel Corp. case brief

Birnbaum v. Newport Steel Corp. case brief summary
193 F.2d 461 (1952)

CASE SYNOPSIS

Appellants sought review of an order from the United States District Court (New York), in which the court dismissed appellants' claims of violation of the Securities Exchange Act of 1934, 15 U.S.C.S. § 78j(b), and S.E.C. Rule 10B-5, 17 C.F.R. § 240.10b-5 (1949).

CASE FACTS
Appellants brought suit against appellee, alleging violation of the Securities Exchange Act of 1934, 15 U.S.C.S. § 78j(b), and S.E.C. Rule 10B-5, 17 C.F.R. § 240.10b-5 (1949). The district court held that Rule 10b-5 did not apply to fraud perpetrated upon the purchaser or seller of securities and had no relation to breaches of fiduciary duty by corporate insiders resulting in fraud upon those who were not purchasers or sellers.

DISCUSSION

• The appeals court agreed with the district court and affirmed the judgment. 
• The appeals court held that the Act was directed solely at the type of misrepresentation or fraudulent practice usually associated with the sale or purchase of securities, rather than at fraudulent mismanagement of corporate affairs. 
• The court further held that Rule 10b-5 extended protection only to the defrauded purchaser or seller.

CONCLUSION
The appeals court affirmed the lower court's judgment.

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