Herman & MacLean v. Huddleston

Supreme Court of the United States · 1983 · Corporations

459 U.S. 375 (1983)

Updated August 22, 2026

CorporationsSecurities regulationSection 10(b)Section 11Standard of proofSecurities Exchange Act of 1934Securities Act of 1933Rule 10b-5

Facts

In 1969 Texas International Speedway, Inc. filed a registration statement and prospectus for a public offering of securities to finance construction of an automobile speedway. After the company failed and entered bankruptcy, purchasers sued participants in the offering, including Herman & MacLean, alleging a fraudulent scheme to misrepresent or conceal material facts about TIS's financial condition in the registration statement and prospectus. After trial, the district court instructed the jury that liability required scienter and that plaintiffs needed to prove their case by a preponderance of the evidence. The jury found for plaintiffs, and the district court entered judgment under § 10(b) and Rule 10b-5.

Issue

May purchasers of registered securities who allege fraud in a registration statement maintain an implied action under § 10(b) even though § 11 provides an express remedy for misstatements and omissions in registration statements? If so, must a private § 10(b) plaintiff prove the claim by clear and convincing evidence or only by a preponderance of the evidence?

Rule

The availability of an express remedy under § 11 of the 1933 Act does not preclude defrauded purchasers of registered securities from maintaining an action under § 10(b) of the 1934 Act. A private action under § 10(b) requires proof of scienter, and the plaintiff's burden of persuasion is proof by a preponderance of the evidence, not clear and convincing evidence.

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

In Phoenix, Solara Gridworks, Inc. sold registered shares to the public. The registration statement allegedly concealed large unpaid equipment invoices, and investor Nina Patel claims the chief financial officer intentionally hid the liabilities before she purchased shares in the offering.

If Nina can likely state a claim under § 11 based on the registration statement, what is the best argument about her separate private fraud claim under § 10(b)?

Explanation. The Court held that § 11 and § 10(b) create distinct, cumulative remedies. Even when the same fraudulent conduct appears in a registration statement and is actionable under § 11, a defrauded purchaser of registered securities may also maintain a private § 10(b) action, so long as the plaintiff proves the elements of § 10(b), including scienter.