Also known as: manipulate · manipulates · manipulated · manipulating · manipulations · market manipulation
Written by attorneys — see sources below.
2 senses
Physical handling of an object during a lawful Terry patdown that exceeds the limited touching needed to determine whether the object is a weapon. Such excess manipulation converts the encounter into an unlawful search and requires suppression of any resulting seizure.
Physical handling of an object during a lawful Terry patdown that exceeds the limited touching needed to determine whether the object is a weapon. Such excess manipulation converts the encounter into an unlawful search and requires suppression of any resulting seizure.
During a lawful traffic stop, Officer Ramirez patted down Michael Miller's jacket and felt a small, hard cylinder. Ramirez then squeezed and rotated the object repeatedly to identify its contents rather than stopping once he ruled out a weapon. The additional manipulation exceeded Terry limits, so the cylinder and its contents were suppressed.
Deceptive practices such as wash sales, matched orders, or rigged prices that are intended to mislead investors by artificially affecting market activity. The term functions as a statutory term of art under Section 10(b) and does not reach breaches of fiduciary duty absent such deception.
Santa Fe Industries directors approved a short-form merger that cashed out minority shareholders at a low price without any false statement or nondisclosure. Minority shareholders sued under Rule 10b-5 alleging breach of fiduciary duty. Because the transaction involved no deception or market manipulation, the claim failed.
Deceptive practices such as wash sales, matched orders, or rigged prices that are intended to mislead investors by artificially affecting market activity. The term functions as a statutory term of art under Section 10(b) and does not reach breaches of fiduciary duty absent such deception.
Each sense below has its own examples, sources, and questions.
Hertz Corporation moved its executive offices to New Jersey while keeping most operations in California. Plaintiffs argued the move was a sham to create diversity jurisdiction. The Court rejected the claim, holding that only genuine manipulation of the actual direction center would defeat the statutory test.
In September 2007, respondents Melinda Friend and John Nhieu, two California citizens, sued petitioner, the Hertz Corporation, in a California state court. They sought damages for what they claimed were violations of California’s wage and hour laws. They requested relief on behalf of a potential class composed of California citizens who had allegedly suffered similar harms. Hertz filed a notice seeking removal to a federal court. Hertz claimed that the plaintiffs and the defendant were citizens of different States. To support its position, Hertz submitted a declaration by an employee relations manager that sought to show that Hertz’s principal place of business was in New Jersey, not in California. The declaration stated, among other things, that Hertz operated facilities in 44 States and that California accounted for 273 of Hertz’s 1,606 car rental locations, about 2,300 of its 11,230 full-time employees, about $811 million of its $4,371 billion in annual revenue, and about 3.8 million of its approximately 21 million annual transactions. The declaration also stated that the leadership of Hertz and its domestic subsidiaries is located at Hertz’s corporate headquarters in Park Ridge, New Jersey, that its core executive and administrative functions are carried out there and to a lesser extent in Oklahoma City, Oklahoma, and that its major administrative operations are found at those two locations. The District Court of the Northern District of California accepted Hertz’s statement of the facts as undisputed. But it concluded that Hertz was a citizen of California. Applying Ninth Circuit precedent, the court found that the plurality of each of the business activities at issue was in California. The differential between the amount of those activities in California and the amount in the next closest state was significant. The District Court consequently remanded the case to the state courts. Hertz appealed the District Court’s remand order to the Ninth Circuit, which affirmed in a brief memorandum opinion. Hertz filed a petition for certiorari, and in light of differences among the Circuits in the application of the test for corporate citizenship, the Supreme Court granted the writ. Respondents pointed out that the statute permitting Hertz to appeal the District Court’s remand order to the Court of Appeals constitutes an exception to a more general jurisdictional rule that remand orders are not reviewable on appeal. They argued that Congress intended to permit review of a remand order only by a court of appeals, not by the Supreme Court.
View case2 common questions
An officer may touch an object only to the extent necessary to determine whether it is a weapon. Any further squeezing, rotating, or probing that reveals contraband exceeds the limited scope of a weapons search and renders the seizure invalid.
A move constitutes manipulation only when the claimed nerve center is a sham such as a mail drop or annual retreat. Courts then disregard the nominal location and treat the place of actual direction and control as the principal place of business.
In 1936 Santa Fe Industries, Inc. acquired control of 60 percent of the stock of Kirby Lumber Corp., a Delaware corporation. Through a series of purchases between 1968 and 1973 Santa Fe raised its ownership to 95 percent at prices ranging from $65 to $92.50 per share. In 1974 Santa Fe decided to obtain 100 percent ownership. It invoked Delaware's short-form merger statute. The statute allows a parent owning at least 90 percent of a subsidiary to merge upon board approval and pay cash to the remaining shareholders without their consent or advance notice. Santa Fe obtained independent appraisals valuing Kirby's physical assets at $320 million, or $640 per share. It retained Morgan Stanley & Co. to appraise the stock. Morgan Stanley valued the shares at $125 each. Santa Fe offered the minority $150 per share. The merger became effective on July 31, 1974. The minority received notice within ten days together with an information statement containing the asset appraisals, Morgan Stanley's valuation, and other financial data. The information statement advised minority shareholders of their statutory right to petition the Delaware Court of Chancery for an appraisal of fair value. Respondents, minority stockholders of Kirby, filed a petition for appraisal on August 21, 1974. They withdrew it on September 9. The next day they commenced this federal action on behalf of the corporation and other minority shareholders. The amended complaint alleged that Kirby stock was worth at least $772 per share based on the pro rata value of physical assets. It alleged that the merger lacked any justifiable business purpose. It alleged that the merger occurred without prior notice. It alleged that Santa Fe obtained a fraudulent appraisal from Morgan Stanley to lull minority shareholders into accepting an inadequate price. The complaint asserted that this conduct violated Rule 10b-5 by employing a device, scheme, or artifice to defraud and by engaging in an act or practice that operated as a fraud or deceit in connection with the purchase or sale of securities. The District Court for the Southern District of New York dismissed the complaint for failure to state a claim. The Court of Appeals for the Second Circuit reversed. The Supreme Court granted certiorari.
View caseBasic Inc. made repeated public statements denying merger talks while negotiations were underway. Shareholders who sold during that period sued, claiming the statements artificially depressed the stock price. The Court held that material misrepresentations of this type constitute the manipulation Section 10(b) targets.
Basic Incorporated was a publicly traded company primarily engaged in manufacturing chemical refractories for the steel industry. As early as 1965 or 1966 Combustion Engineering expressed interest in acquiring Basic but was deterred by antitrust concerns. In 1976 regulatory action removed the antitrust barrier and Combustion's strategic plan listed an objective to acquire Basic for thirty million dollars. Beginning in September 1976 Combustion representatives met and spoke by telephone with Basic officers and directors about a possible merger. During 1977 and 1978 Basic issued three public statements denying that merger negotiations were under way. On December 18 1978 Basic asked the New York Stock Exchange to suspend trading in its shares and announced it had been approached by another company concerning a merger. The next day Basic's board endorsed Combustion's offer of forty-six dollars per share. On December 20 1978 Basic publicly announced approval of Combustion's tender offer for all outstanding shares. Respondents are former Basic shareholders who sold their stock after Basic's October 21 1977 public statement and before the December 1978 trading suspension. Respondents brought a class action against Basic and its directors alleging that the three statements violated section 10(b) and Rule 10b-5 by misleading the market and causing sales at artificially depressed prices. The District Court certified the class under a presumption of reliance but granted summary judgment for the defendants on the ground that any misstatements were immaterial. The Court of Appeals for the Sixth Circuit affirmed class certification reversed the summary judgment and remanded the case. The Supreme Court granted certiorari.
View caseJ. I. Case distributed a proxy statement seeking approval of a merger while concealing prior unlawful market manipulation of the target stock. A shareholder sued for violation of the proxy rules. The Court recognized an implied private right of action to remedy the deception.
Respondent owned 2,000 shares of common stock of J. I. Case Company acquired prior to the merger. He brought a civil action based on diversity jurisdiction. Respondent sought to enjoin a proposed merger between Case and the American Tractor Corporation on grounds including breach of the fiduciary duties of the Case directors, self-dealing among the management of Case and ATC, and misrepresentations contained in the material circulated to obtain proxies. The complaint was in two counts. The first count was based on diversity and claimed a breach of the directors' fiduciary duty to the stockholders. The second count alleged a violation of § 14(a) of the Securities Exchange Act of 1934 with reference to the proxy solicitation material. The injunction was denied and the merger was consummated. Successive amended complaints were filed. The case was heard on the two-count complaint. The allegations included that petitioners solicited proxies for a special stockholders’ meeting at which the merger was to be voted upon. The proxy solicitation material was false and misleading in violation of § 14(a) and Rule 14a-9. The merger was approved by a small margin of votes and would not have been approved but for the false and misleading statements. Case stockholders were damaged thereby. The District Court held that as to the federal count it had no power to redress the alleged violations of the Act but was limited solely to the granting of declaratory relief thereon under § 27 of the Act. The court held the Wisconsin security for expenses statute applicable to both counts except the declaratory portion of Count 2. It ordered respondent to furnish a bond in the amount of $75,000. Upon his failure to do so, the court dismissed the complaint save that part of Count 2 seeking a declaratory judgment. On interlocutory appeal the Court of Appeals reversed on both counts. It held that the District Court had the power to grant remedial relief and that the Wisconsin statute was not applicable. The Supreme Court granted certiorari limited to the question of whether § 27 of the Act authorizes a federal cause of action for rescission or damages to a corporate stockholder with respect to a consummated merger authorized pursuant to a proxy statement alleged to contain false and misleading statements violative of § 14(a) of the Act.
View caseTexas Gulf Sulphur executives purchased company stock after learning of a major mineral discovery but before any public announcement. The SEC charged that the undisclosed purchases constituted manipulative conduct under Rule 10b-5. The court agreed that trading on material nonpublic information distorts market prices.
This action was commenced by the Securities and Exchange Commission against Texas Gulf Sulphur Company and several of its officers, directors, and employees in the United States District Court for the Southern District of New York pursuant to Section 21(e) of the Securities Exchange Act of 1934. The complaint alleged that certain individual defendants had purchased TGS stock or calls on the basis of material inside information concerning drilling results in Timmins, Ontario, while such information remained undisclosed, that some had divulged the information to others, that some had accepted stock options without disclosure, and that TGS had issued a deceptive press release on April 12, 1964. The case was tried before Judge Bonsal sitting without a jury. TGS began exploratory activities on the Canadian Shield in 1957. In March 1959, aerial geophysical surveys detected anomalies including on the Kidd 55 segment near Timmins, Ontario. On October 29 and 30, 1963, a ground survey confirmed an anomaly, leading to diamond core drilling of hole K-55-1 commencing November 8 and terminating November 12 at 655 feet. Visual estimates by Holyk indicated an average copper content of 1.15% and an average zinc content of 8.64% over a length of 599 feet. The core was shipped to Utah for chemical assay which, when received in early December, revealed an average mineral content of 1.18% copper, 8.26% zinc, and 3.94 ounces of silver per ton over a length of 602 feet. TGS kept results confidential to facilitate land acquisition. Between November 12, 1963 and April 9, 1964, certain individual defendants purchased TGS stock or calls, increasing their holdings from 1135 shares and no calls to 8235 shares and 12,300 calls. On February 20, 1964, TGS issued stock options to officers including Stephens, Fogarty, Mollison, Holyk, and Kline, none of whom disclosed the drilling results to the Stock Option Committee or Board. Drilling resumed March 31, 1964. Visual estimates of K-55-3 revealed an average mineral content of 1.12% copper and 7.93% zinc over 641 of the hole's 876-foot length. On April 7, drilling of K-55-4 was commenced and mineralization was encountered over 366 of its 579-foot length. Rumors that a major ore strike was in the making had been circulating throughout Canada, leading TGS to issue a press release on April 12, 1964, stating that drilling had led to preliminary indications requiring more drilling and that statements as to size and grade would be premature. Drilling continued, and on April 16, 1964, TGS made an official announcement of a major discovery of at least 25 million tons of ore. After the April 12 release, Clayton purchased 200 shares on April 15, Crawford ordered 600 shares on April 15 and 16, and Coates ordered 2000 shares on April 16 after the official announcement but before full dissemination. Judge Bonsal found violations only by Clayton and Crawford after April 9, dismissed the rest. Clayton and Crawford appealed, and the SEC appealed the dismissals.
View case2 common questions
No. The statute prohibits only manipulative or deceptive devices. A breach of fiduciary duty by majority shareholders that involves no misrepresentation or market manipulation falls outside the reach of Rule 10b-5.
Manipulation requires affirmative conduct intended to mislead the market, such as wash sales or rigged prices. Mere silence or failure to disclose, without more, does not satisfy the statutory element unless accompanied by deceptive acts.
…that in this case, there is no evidence that petitioner Basic's officials made the troublesome misstatements for the purpose of manipulating stock prices, or with any intent to engage in underhanded trading of Basic stock. Indeed, during the class period, petitioners do not appear to have purchased or sold any Basic stock…