Settlement Fund Fraud Is Not Securities Fraud

The SEC recently brought an enforcement case under Rule 10b-5 against defendants alleged to have submitted false records to administrators of distribution funds set up to make payments to victims of securities violations. The court should dismiss the case. It fails to meet one of the essential elements of a claim under Rule 10b-5: misconduct “in connection with the purchase or sale of any security.” The alleged actions of the defendants did not coincide with a securities transaction. Fraud on a distribution fund is not securities fraud