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in fraudulent transactions with other companies, such as America Online and Cendant Corporation. All of the parties knew that the transactions were shams designed and executed with the primary purpose of enabling each of the companies to misrepresent their financial condition. The Homestore.com action gave rise to the decision of the United States Court of Appeals for the Ninth Circuit in Simpson v. AOL Time Warner, Inc., 452 F.3d 1040 (9th Cir. 2006), in which the United States Court of Appeals for the Ninth Circuit enforced a standard consistent with the position of the Securities and Exchange Commission. This decision is presently the subject of a pending petition for certiorari filed by Cendant Corporation sub nom Avis Budget Group, Inc. v. California State Teachers' Retirement System, No. 06-560 (Oct. 19, 2006).
II.
SUMMARY OF ARGUMENT
Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c) prohibit knowing conduct that has the principal purpose and effect of creating a false appearance about a public corporation’s business and financial results in furtherance of a scheme to defraud investors. The statute and rule have never been limited to those who affirmatively make statements or material omissions. The decision of the Eighth Circuit would place such a limitation on liability under the statute and rule, creating a safe harbor for those who would engage in fraud and impair the securities markets. No such requirement is present in the statute, no such requirement exists in the rule, and the consequences of such a rule would threaten the integrity of the securities markets.
