The question of whether a misrepresentation is made "in connection with" the sale or purchase of a security is one of the most heavily litigated securities issues.
Historically, guidance from the courts on this issue has done nothing more than provide difficult-to-apply synonyms such as "coincide with" or "more than tangentially related."
Adding to the confusion, plaintiffs and defendants take different positions on the issue depending on the type of case.
In a case under Section 10-b(S) of the Securities Exchange Act, the "in connection with" requirement is an element of the plaintiff s claim. As a result, plaintiffs argue for a broad interpretation while defendants argue for a narrow one.
In securities class actions, however, the Securities Litigation Uniform Standards Act preempts state law claims that allege a misrepresentation "in connection with" the purchase or sale of a covered security.
In those cases, plaintiffs argue for a narrow interpretation of the requirement in an attempt to save their state-law class action claims.
The result is a glut of case law that can be difficult to reconcile.
Last year, the U.S. Supreme Court once again weighed in on this issue in Chadbourne & Parke LLC v. Troice, 134 S. Ct. 1058 (2014), providing further guidance on how the "in connection with" requirement should be applied.
Observers followed the case closely to see whether the high court would narrow its interpretation of the requirement.
Though courts have had more than a year to interpret Chadbourne, it appears that the "in connection with" requirement has not changed.
Instead, the lasting impact of Chadbourne will more likely be its provision of an analytical framework that allows lawyers to reconcile the case law on this issue and determine whether a misrepresentation is made "in connection with" the purchase or sale of a security.
The complete article, "The “In Connection with” Requirement After Chadbourne & Park v. Troice," first appeared in Westlaw Journal Derivatives on August 13, 2015.