## Facts

- Wharf (Holdings) Limited, a Hong Kong company, pursued a Hong Kong cable-television franchise and sought United International Holdings, Inc.’s help with its application, contracts, system planning, and financing.
- In exchange for United’s services, Wharf orally agreed to give United an option to buy 10% of the stock in Wharf’s Hong Kong cable system if Wharf obtained the franchise; the option agreement was not put in writing.
- Wharf later obtained the franchise. United performed the requested services and arranged financing consistent with the contemplated 10% interest.
- When United notified Wharf that it was ready to exercise the option, Wharf refused to allow United to exercise it.
- United introduced evidence, including Wharf’s internal documents, from which a jury could infer that Wharf, at the time it made the option promise, had a secret intent never to let United exercise the option (a “secret reservation”).
- United sued in federal court alleging that Wharf’s conduct violated § 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. Wharf had conceded below that the option itself was a “security.”
- A jury returned a verdict for United; the Tenth Circuit affirmed; the Supreme Court granted certiorari.

## Issues

1. Whether the “security” at issue could be the option to buy stock (as opposed to only the underlying cable-system stock), given Wharf’s concession and the statutory definition of “security.”
2. Whether selling an oral option to buy stock while secretly intending not to honor the option is a “manipulative or deceptive device or contrivance” used “in connection with the purchase or sale of any security” under § 10(b) and Rule 10b-5.
3. Whether § 10(b) excludes oral contracts for the purchase or sale of securities as a category.

## Decision

- The Court unanimously affirmed the Tenth Circuit, in an opinion by Justice Breyer.
- The Court treated the option as the relevant “security” because Wharf had conceded that point below, and the Exchange Act’s definition includes options and rights to purchase stock.
- Wharf’s secret intent not to honor the option at the time it sold the option to United constituted deception actionable under § 10(b) and Rule 10b-5.
- The conduct was “in connection with” the purchase or sale of a security because United gave consideration (its services) to acquire the option, and the alleged deceit concerned what United was buying—an exercisable option.
- The Court rejected the claim that § 10(b) does not reach oral securities contracts, noting the statute applies to “any contract” for purchase or sale and finding no convincing reason to exclude oral agreements as a class.
- The Court distinguished Blue Chip Stamps v. Manor Drug Stores: United was not a mere would-be purchaser; it actually acquired the option that Wharf sold.

## Legal Principles

- - An option to buy stock, and a right to purchase stock, can be a “security” within the Exchange Act’s definition, so fraud in the sale of an option can fall within § 10(b) and Rule 10b-5.
- - A promise to convey a security interest (here, an option) made with a contemporaneous secret intent not to perform can function as deception for § 10(b) and Rule 10b-5 purposes.
- - The “in connection with” requirement is satisfied when the deceptive conduct relates to the terms or existence of the security transaction itself—what the buyer is acquiring and whether the seller means to deliver it.
- - Section 10(b) is not limited to written securities contracts; absent a statutory basis, courts should not carve out oral contracts as categorically beyond the federal securities antifraud rules.
- - Blue Chip Stamps limits private § 10(b) claims by nonpurchasers/non-sellers, but it does not bar claims based on oral purchases or sales where the plaintiff actually bought or sold a security.

## Conclusion

Wharf (Holdings) Ltd. v. United Int’l Holdings, Inc. held that selling an oral option to buy stock while secretly intending never to honor it is deceptive conduct “in connection with” the purchase or sale of a security under § 10(b) and Rule 10b-5, and the Court declined to exclude oral securities contracts from the statute’s reach.


Wharf (Holdings) Ltd. v. United Int’l Holdings, Inc., 532 U.S. 588 (2001)