## Facts

- Richard L. Zweig and Muriel Bruno owned interests in Reading Guidance Center (RGC), which was being acquired by American Systems, Inc. (ASI) in an exchange valued by reference to ASI’s market price on a specified date.
- Alex N. Campbell, a financial columnist for the *Los Angeles Herald-Examiner* (published by The Hearst Corporation), allegedly received promotional information about ASI from ASI directors H.W. Jamieson and E.L. Oesterle that contained material misrepresentations and omissions.
- Before publication of his column, Campbell allegedly bought 5,000 shares of ASI stock from the company at a substantial discount below market price.
- Campbell then published a highly favorable column about ASI that did not disclose his discounted purchase, his financial interest, or his alleged intent to sell into a post-publication price increase.
- Plaintiffs alleged the column temporarily inflated ASI’s stock price on the valuation date, causing them to receive less ASI stock in the RGC transaction than they otherwise would have received.
- Plaintiffs sued Campbell, Hearst, Jamieson, and Oesterle for violations of § 10(b) and SEC Rule 10b-5, and for common-law fraud and negligence.

## Issues

1. Whether a financial columnist who buys a security at a discount and then publicly promotes it while intending to profit must disclose his financial interest and trading intent under § 10(b) and Rule 10b-5.
2. Whether the newspaper publisher is vicariously liable under the federal securities laws for the columnist’s alleged manipulative scheme.
3. Whether plaintiffs whose transaction price was pegged to market price can state and prove reliance and causation where the alleged fraud operated through market price inflation.

## Decision

- The Ninth Circuit affirmed summary judgment for Hearst, holding Hearst was not vicariously liable on the record presented.
- The Ninth Circuit reversed the judgment for Campbell on the Rule 10b-5 claim, holding the district court erred in concluding Campbell owed no disclosure duty to readers.
- The case was remanded for further proceedings consistent with the appellate court’s recognition that nondisclosure of the columnist’s conflict and trading plan could be actionable.

## Legal Principles

- Rule 10b-5 reaches both affirmative misstatements and omissions of material facts necessary to make statements not misleading when a duty to disclose exists.
- A financial columnist who uses public commentary to influence a security’s market price while holding an undisclosed, self-interested position and intending to trade on the expected market impact has a duty to disclose that conflict and trading intent.
- Such nondisclosure can qualify as deceptive conduct “in connection with” the purchase or sale of securities when the commentary is part of an integrated plan involving the author’s trading.
- Investors harmed by an allegedly fraud-distorted market price used to value a securities-for-property exchange may fall within Rule 10b-5’s protective scope, subject to proof of materiality, causation, and reliance (or an accepted substitute).
- A publisher is not automatically liable under § 10(b) for an employee’s securities fraud; vicarious liability requires a sufficient basis in participation, control, or a comparable nexus shown by the record.

## Conclusion

The Ninth Circuit held that a financial columnist may violate Rule 10b-5 by touting a stock without disclosing a discounted purchase and intent to profit from the market reaction, but it declined to impose vicarious securities-law liability on the newspaper publisher on the facts presented and remanded the securities claim against the columnist for further proceedings.


Zweig v. Hearst Corp., 594 F.2d 1261 (9th Cir. 1979)