Exclusive Federal Jurisdiction for Implied Rule 10b-5 Actions: The Emperor Has No Clothes

Courts have long assumed the existence of exclusive federal jurisdiction over private actions implied from section 10(b) of the Securities Exchange Act of 1934 and rule 10b-5. The result is not only to restrict forum choice for rule 10b-5 claimants but also to generate a host of questions concerning the extent of federal authority: whether rule 10b-5 actions are exempt from the claim and issue preclusive effects of state court decisions; whether state courts can hear defenses and state-created claims that involve rule 10b-5; and whether federal courts can stay rule 10b-5 actions in deference to state court litigation. In dividing on these questions, courts invariably fail to examine the underlying premise: that exclusive federal jurisdiction has a valid legal basis. The thesis of this Article is that exclusive federal jurisdiction over rule 10b-5 actions lacks a legitimate foundation and should be rejected. State courts should share with federal courts the adjudication of rule 10b-5 actions.