## Facts

- Texas International Speedway, Inc. filed a 1969 registration statement and prospectus to sell over $4 million in securities to finance construction of a racetrack.
- The offering sold out in October 1969; the company filed for bankruptcy a little over a year later.
- Purchasers brought a class action against participants in the offering, including Herman & MacLean and the offering’s accounting firm.
- Plaintiffs alleged material misrepresentations and omissions in the registration statement and prospectus concerning the company’s financial condition and construction costs.
- Plaintiffs sued under § 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 rather than under § 11 of the Securities Act of 1933.
- At trial, the district court instructed the jury to apply a preponderance-of-the-evidence standard; the jury found for plaintiffs.
- The Fifth Circuit held § 10(b) was available notwithstanding § 11, but required “clear and convincing” proof and reversed on other grounds.

## Issues

1. Whether the availability of an express civil remedy under § 11 of the Securities Act of 1933 bars a private damages action under § 10(b) of the Securities Exchange Act of 1934 based on the same alleged misstatements or omissions.
2. Whether a private plaintiff in a § 10(b)/Rule 10b-5 action must prove the claim by clear and convincing evidence rather than by a preponderance of the evidence.

## Decision

- The Court held that § 11’s express remedy does not preclude purchasers of registered securities from maintaining a private action under § 10(b) based on the same conduct.
- The Court held that the proper standard of proof in a private § 10(b)/Rule 10b-5 action is preponderance of the evidence.
- The Court rejected the Fifth Circuit’s heightened “clear and convincing” evidentiary burden.

## Legal Principles

- Remedies under the 1933 and 1934 securities acts may overlap; conduct actionable under § 11 is not exempt from liability under § 10(b).
- § 11 and § 10(b) create distinct causes of action: § 11 is tied to registration statements and specified defendants, while § 10(b) is a broad antifraud provision applicable to any security transaction.
- A private § 10(b)/Rule 10b-5 plaintiff must prove scienter, which serves as a substantive limitation on liability but does not alter the evidentiary burden.
- Absent statutory direction or special circumstances, the default civil standard—preponderance of the evidence—governs private § 10(b)/Rule 10b-5 actions.

## Conclusion

The Court confirmed that investors may pursue § 10(b)/Rule 10b-5 claims even when the same alleged misstatements or omissions could also support a § 11 claim, and it established that private § 10(b) actions are proved by a preponderance of the evidence, not by clear and convincing evidence.


Herman & MacLean v. Huddleston, 459 U.S. 375 (1983)