186 N.E. 659
SYNOPSIS: Plaintiff appealed a final decree of the Superior Court of Massachusetts dismissing action regarding losses suffered when he sold stock to defendants, directors of a corporation. Plaintiff alleged defendants had breached their fiduciary duty by failing to disclose information regarding the company's mining assets.
FACTS: Mining company stockholder filed suit for losses suffered in selling stock shares to the defendants who were directors of the corporation, alleging that defendants' purchase of stocks without first disclosing to him the existence and results of the geological survey created a breach of their fiduciary duties.
Court held that no fiduciary relationship was created between them in regards to the stock sale and there existed no circumstances requiring the court to set aside the transfer of stock.
-Silence on the part of the director buyer usually does not amount to a breach of duty and that here, although defendants knew the survey results, the report was not conclusive, and thus defendants were not obligated to inform the shareholders of survey results.|
Section 10(b) and Rule 10b-5
-Rule 10b-5 makes it unlawful for any person in connection with the purchase or sale of a security.
a. To employ any device, scheme or artifice to defraud.
b. To make any untrue or misleading statement.
c. To engage in any act, practice or course of business which would operate as a fraud or deceit on any person.
- "an omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote."
OUTCOME: Court affirmed dismissal of bill which challenged defendants' purchase of stocks. Court held defendants' knowledge of information not available to plaintiff did not create an added duty to disclose information; defendants were allowed to keep silent regarding the survey and to purchase stocks from plaintiff.
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