Affiliated Ute Citizens v. United States

Supreme Court of the United States · 1972 · Corporations

406 U.S. 128 (1972)

Updated August 1, 2026

CorporationsrelianceomissionsRule 10b-5materialitycausationduty to disclosemarket makers

Facts

UDC stock was issued to mixed-blood Utes, and First Security Bank served as transfer agent while retaining possession of the stock certificates bearing strong warnings against sale. Bank employees Gale and Haslem actively cultivated a non-Indian market for the stock, maintained standing buy orders, prepared transfer papers and affidavits for sellers, received commissions and gratuities, and in some instances purchased shares themselves, all while being familiar with the market and higher resale prices. The mixed-blood sellers dealt through the bank and relied on Gale and Haslem as persons familiar with the market, but defendants did not disclose their financial interest in the transactions or that the shares were selling at higher prices in the non-Indian market. Separately, AUC sought pro rata distribution of the mixed-bloods' percentage of the tribal mineral estate and a declaration that AUC, rather than UDC, had management rights over that estate.

Issue

In the Reyos case, whether Gale, Haslem, and the bank violated Rule 10b-5 by facilitating purchases of UDC shares without disclosing material facts, and whether the sellers had to prove actual reliance on affirmative misstatements in an omissions-based fraud case. In the AUC case, whether federal jurisdiction existed to compel distribution of the mineral estate and whether AUC or UDC had the right to manage the undivided mineral interests.

Rule

When a case involving Rule 10b-5 is based primarily on a failure to disclose, positive proof of reliance is not a prerequisite to recovery. It is enough that the withheld facts were material, meaning a reasonable investor might have considered them important in making the decision, and the duty to disclose plus nondisclosure establishes causation in fact. Persons who function as market makers or otherwise actively facilitate securities sales while positioned to profit have an affirmative duty to disclose those interests and the existence of a higher market price known to them.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Tulsa, Prairie Ledger Trust serves as transfer agent for a closely held energy corporation's shares. Its employee, Nora Vance, regularly connects rural shareholders with outside buyers, knows those buyers are paying substantially more in a private resale market, and receives referral fees from the buyers, but she says nothing about either fact when preparing the sale documents for sellers.

If the sellers sue under Rule 10b-5 and cannot identify any affirmative misstatement by Nora, which is the strongest argument for recovery?

Explanation. The majority held that where the case involves primarily a failure to disclose, positive proof of reliance is not a prerequisite to recovery. It is enough that the omitted facts were material and that the defendant had an affirmative duty to disclose them. Here, Nora actively facilitated sales, stood to profit, and knew of a higher market price, so the omitted facts were ones a reasonable investor might consider important.