I’ve blogged several times about the unduly narrow concept of “standing” and the “purchaser-seller” rule that courts have been applying in the context of Section 10(b).  (Most recent post discussing it is here; there is a link to earlier posts).

We have a new case that adds to the mix.

Toronto Dominion Bank signed an agreement to purchase the stock of First Horizon, which of course caused First Horizon’s price to trade upward.  Eventually, TD got into regulatory trouble and the merger fell through, which caused First Horizon’s stock to fall.  Purchasers of First Horizon stock sued First Horizon, but they also sued TD Bank, alleging that its false representations of regulatory compliance made the merger seem more plausible and inflated First Horizon’s stock price.

Careful readers will recognize that this is, more or less, exactly what happened in Semerenko v. Cendant Corp., 223 F.3d 165 (3d Cir. 2000).  There, the defendants argued that statements about the acquirer (in this case, the acquirer’s audit opinion) were not made “in connection with” the purchase or sale of the target’s securities, as Section 10(b) requires.  The Third Circuit held that that statements about the would-be acquirer were made “in connection with” purchases of the target’s securities, because they were material and publicly disseminated.  The only limitation that the court added was that, to sue a particular defendant, plaintiffs would have show that it was foreseeable that the defendant’s statements would be relied upon by traders in the relevant securities.  Therefore, with that additional caveat, purchasers of the target’s securities could sue the acquirer’s auditor.

The TD Bank case was filed in the District of New Jersey, which would make Cendant precedent, but the district court nonetheless dismissed the plaintiffs’ claims, on the ground that the plaintiffs were not purchasers or sellers of TD Bank securities and had no standing to sue.  The court reasoned:

True, the fact pattern in Cendant is similar to the case before it.  Critically, however, Cendant did not address statutory standing or the purchaser-seller rule at all, relevant here.  Instead, it focused on a separate requirement of a Section 10(b) claim, namely that the alleged misrepresentation be “in connection with” the purchase or sale of a security.  The defendants argued that “the alleged misrepresentations must speak directly to the investment value of the security that is bought or sold, and that they must have been made in with the specific purpose or objective of influencing an investor’s decision.”  The plaintiffs, in turn, argued that “the ‘in connection with’ requirement is satisfied whenever a misrepresentation was made in a manner that is reasonably calculated to influence the investment decisions of market participants.”… The Court will not read an implicit ruling on statutory standing into Cendant.  Cendant plainly did not address the purchaser-seller rule or statutory standing.

In re Toronto-Dominion Bank / First Horizon Corp. Sec. Litig., 2025 U.S. Dist. LEXIS 232405 (D.N.J. Nov. 26, 2025).

I have a question.

Where, exactly, does the court think the purchaser-seller rule comes from?

Because, to me, the purchaser-seller rule was articulated in Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975), citing the Second Circuit’s decision in Birnbaum v. Newport Steel Corp., 193 F.2d 461 (2d Cir. 1952).  And that rule was explicitly an interpretation of what it means for a fraud to be committed “in connection with” the purchase or sale of a security.  See Blue Chip, 421 U.S. at 731 (“The panel which decided Birnbaum consisted of Chief Judge Swan and Judges Learned Hand and Augustus Hand: the opinion was written by the last named. Since both § 10(b) and Rule 10b-5 proscribed only fraud ‘in connection with the purchase or sale’ of securities, and since the history of § 10(b) revealed no congressional intention to extend a private civil remedy for money damages to other than defrauded purchasers or sellers of securities, in contrast to the express civil remedy provided by § 16(b) of the 1934 Act, the court concluded that the plaintiff class in a Rule 10b-5 action was limited to actual purchasers and sellers.”). The rule, as articulated in Blue Chip, was that there needed to be an actual purchase or sale by a private plaintiff.

So when the Third Circuit in Cendant interpreted “in connection with” to extend to purchases or sales of a different, but related, company’s securities, it was looking at the exact same language and the exact same requirement – the plaintiff must have made a purchase or sale – and concluded that it was sufficient if the “purchase or sale” involved a security that would have been foreseeably affected by the defendant’s fraud.  This scenario was precisely what the Third Circuit had in mind.

This whole idea that somehow “in connection with” as articulated in Cendant is a different concept from the purchaser-seller rule or a standing rule is incoherent to me; it’s all interpretation of the same language, and it’s all the same question, namely, were these plaintiffs among the class of persons targeted by – and injured by – the fraud?  And the purportedly-bright line rule that some courts have announced – the statement must be “about” the traded security – is unworkable on its face; you cannot answer the question of what security a statement is “about” without addressing who the audience was. TD Bank’s representations about regulatory compliance, in the proxy statement and in statements about the merger itself, were at least as much addressed to a First Horizon shareholder audience as anyone else.

And while – as I’ve said before – I understand courts’ wariness about permitting too broad a connection (ultimately, every bit of information is connected to everything else), “had an explicit merger agreement” doesn’t seem like too difficult a line to draw.  We’re seconds away from an explicit pump and dump – fake tender offer so the fraudster can dump their shares at an inflated price – not being made “in connection with” the subject securities if the false statement is about, I dunno, the offeror’s financing, and that’s about the core of what Section 10(b) was supposed to prohibit in the first place.

There is no other thing.  Mike Levin and I took a Thanksgiving break this week from the Shareholder Primacy podcast; back soon!