Oregon Court of Appeals Issues Decision Interpreting Antifraud Provisions of Oregon Securities Law
By Peter Hawkes
On February 11, the Oregon Court of Appeals issued an important decision interpreting the antifraud provisions of the Oregon Securities Law. The Court of Appeals held that ORS 59.137, which governs the private right of action for securities fraud in “open market” (as opposed to face-to-face) transactions, includes a scienter requirement, meaning that a plaintiff must prove that a defendant acted with a guilty state of mind when making an alleged misrepresentation in connection with the purchase or sale of a security.
The Court of Appeals’ decision is the latest in a series of related opinions that, collectively, have largely harmonized the Oregon Securities Law with the federal Securities and Exchange Act § 10(b) and Rule 10b-5 thereunder. In State v. Marsh & McLennan Cos., Inc., 353 Or 1, 292 P3d 525 (2012), the Oregon Supreme Court reversed the Court of Appeals’ earlier ruling that a plaintiff must prove direct reliance on a misrepresentation to recover in an action under ORS 59.137. Instead, the Supreme Court held that, like federal securities law, ORS 59.137 incorporates the “fraud-on-the-market” presumption of reliance. On remand, the Court of Appeals has now decided an issue it had not reached in that earlier ruling – whether, due to the lack of a scienter requirement, ORS 59.137 was unconstitutional on federal preemption or dormant Commerce Clause grounds. The Court of Appeals held that ORS 59.137, like federal Rule 10b-5, does include a scienter requirement with respect to primary violators. Thus, the court concluded, there is no constitutional infirmity in the statute, because state and federal law are in agreement.
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