What is the 'Rule 10b-5'
The rule 10B-5 is a regulation formally known as the Employment of Manipulative and Deceptive Practices that was created under the Securities Exchange Act of 1934. This rule deems it to be illegal for anybody to directly or indirectly use any measure to defraud, make false statements, omit relevant information or otherwise conduct operations of business that would deceive another person; in relation to conducting transactions involving stock and other securities.
BREAKING DOWN 'Rule 10b-5'
This rule is the main basis for the Securities and Exchange Commission (SEC) to investigate possible security fraud claims.
Examples of offenses that would violate rule 10b-5 would be: executives making false statements in order to drive up share prices or a company hiding huge losses or low revenues with creative accounting practices.