by Giulia Piccininni *

Federal Courts of Appeals throughout the country have interpreted § 14(e) of the Williams Act to require plaintiffs to make a showing of scienter when alleging entities engaged in tender offers made material misstatements and omissions in connection with tender offers. This long-standing interpretation was interrupted in 2018 when the Ninth Circuit held in Varjabedian v. Emulex Corporation that a showing of mere negligence was enough to plead a § 14(e) claim. The Supreme Court granted certiorari in Varjabedian to resolve the circuit split but ultimately did not issue a decision. The case was further complicated when the defendant and numerous amicus briefs raised an additional issue: whether § 14(e) gives plaintiffs a private right of action at all. This Contribution argues that § 14(e) is currently misinterpreted by a majority of the Courts of Appeals: while § 14(e) does not establish a private right of action, it does provide for SEC enforcement that can proceed under a negligence standard. Since § 14(e)’s prohibition on false or misleading statements does not contain language that necessarily implies scienter, such a showing is not required. At the same time, because § 14(e)’s text does not manifest clear congressional intent to create a private right of action, one does not exist.

Congress enacted § 14(e) as part of the 1968 amendments to the Securities Exchange Act (“SEA”), known as the Williams Act, to address a gap in securities laws concerning tender offers.1 A tender offer is a public offering to buy outstanding shares of a company’s stock for a certain price that typically includes a premium over the market price. Specifically, § 14(e) prohibits material misstatements and omissions or “any fraudulent, deceptive, or manipulative acts or practices” in connection with a tender offer.2

Prior to 2018, the Second, Third, Fifth, Sixth, and Eleventh Circuits agreed that § 14(e) implied a private right of action and required plaintiffs to allege scienter by showing a knowing or reckless misstatement or omission in connection with a tender offer.3 Under this standard, plaintiffs must plead, with particularity, facts that give rise to a strong inference that the defendant knew or should have known that their conduct or statement was false or misleading.4 However, the Ninth Circuit deviated from this precedent in Varjabedian v. Emulex Corp., holding that a showing of mere negligence suffices to plead a § 14(e) violation.5 This negligence standard lowers the pleading burden for plaintiffs, allowing them to more easily survive the motion to dismiss stage. Accordingly, the Supreme Court granted certiorari to decide the question of scienter for § 14(e) claims.6 However, the Court ultimately did not issue a decision because the briefings raised the question of whether § 14(e) creates a private right of action, which had not been properly preserved for review in the lower court proceedings.7 In fact, no lower courts had considered that precise issue, despite the fact that Alexander v. Sandoval strongly limits courts’ ability to imply a private right of action.8

This Contribution will argue that § 14(e) contemplates a negligence standard for allegations of material misstatements or omissions solely enforceable by the Securities and Exchange Commission (“SEC”). First, despite being the minority view, the Ninth Circuit correctly identified that circuit court precedent has long overstated the textual similarities between § 14(e) and the implementing rule of the SEA’s antifraud provision, Rule 10b-5, in order to hold that the elements of the two claims are the same. Their analysis demonstrates that a plain reading of § 14(e) along with the more apt comparison to § 17(a) indicate that negligence is the correct standard. Second, this Contribution argues that under modern Supreme Court jurisprudence following Alexander v. Sandoval, a private right of action is not supported by the text of the statute, which further supports the adoption of a negligence standard.9

To determine that § 14(e) has a scienter requirement, circuit courts have generally agreed with the Second Circuit’s reasoning in Chris-Craft Industries v. Piper Aircraft Corporation that § 14(e) is “virtually identical” to Rule 10b-5, and thus requires the same pleading standards, including a showing of scienter.10 However, when considering the broader context of both the Williams Act and the SEA more generally, the text and purpose indicate that Congress intended a negligence standard for § 14(e), with its benefits and drawbacks. The court in Chris-Craft Industries overlooked that conclusion by failing to meaningfully engage with the differences in the statutes’ texts and regulatory schemes.11 Rule 10b-5 makes it unlawful “(a) To employ any device, scheme, or artifice to defraud, (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made . . . not misleading . . . in connection with the purchase or sale of any security.”12 Although Rule 10b-5 and § 14(e) both prohibit material misstatements or omissions and the employment of fraudulent or manipulative devices, § 14(e) contains the word “or” between these prohibitions and Rule 10b-5 does not.13 Per the surplusage canon, every word in a statute must carry interpretive weight. Ignoring the conjunction “or” fails to consider congressional intent to create two distinct causes of action under § 14(e). Thus, it creates a material textual distinction between Rule 10b-5 and § 14(e) that must be considered by courts engaged in statutory interpretation.

Chris-Craft Industries and its progeny also ignore how the relationship between Rule 10b-5 and § 10(b) of the SEA informs the requirement of scienter for all subsections of Rule 10b-5, where no analogous relationship exists for § 14(e).14 Adopted pursuant to § 10(b), Rule 10b-5 makes it “unlawful for any person . . . [t]o use or employ, in connection with the purchase or sale of any security . . . any manipulative or deceptive device or contrivance in contravention of such rules and regulations . . . as necessary or appropriate in the public interest or for the protection of investors.”15 In Ernst & Ernst v. Hochfelder, the Supreme Court held that the text of § 10(b) limits the authority of the SEC to prescribe rules that regulate only conduct that is “manipulative” or “deceptive.”16 In turn, the Court determined that Rule 10b-5 should be interpreted to only reach willful or intentional conduct, precluding the applicability of a negligence pleading standard.17 However, the Court noted that the plain language of Rule 10b-5’s prohibition on material misstatements or omissions viewed in isolation from § 10(b) and its legislative history does not necessarily indicate a requirement of scienter.18 Thus, § 10(b) significantly limits the reach of Rule 10b-5 to only willful actions, whereas § 14(e) is not limited by § 10(b) or any other analogous provision.

The Ninth Circuit in Varjabedian correctly highlighted these weaknesses and identified § 17(a) of the SEA as a more apt textual comparison to § 14(e) than Rule 10b-5.19 Section 17(a) makes it unlawful “(1) to employ any device, scheme, or artifice to defraud, or (2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact” in connection with the offer or sale of securities.20 The language of § 17(a) is substantially similar to both Rule 10b-5 and § 14(e), except the word “or” is present between the two prohibitions—which is true of § 14(e) but not Rule 10b-5.21 In interpreting § 17(a), the Supreme Court in Aaron v. SEC held that this conjunction creates two distinct causes of action under § 17(a), with § 17(a)(1) requiring a showing of scienter at the pleading stage and § 17(a)(2) requiring negligence.22 Notably, the Court found that because none of the language in § 17(a)(2) necessarily implies scienter, it could be applied to impose liability on any material misstatement or omission that has the effect of defrauding investors.23 Furthermore, like § 17(a)(1), § 14(e)’s prohibition against “fraudulent, deceptive, or manipulative acts or practices” represents a “distinct category of misconduct,” and the scienter requirement applied to those acts should not prevent the prior clause’s prohibition against misstatements or omissions from requiring mere negligence.24 Thus, the word “or” in both statutes is significant because it creates two distinct prohibitions, and a plain language reading of § 14(e) supports that negligence is the correct standard when alleging material misstatements or omissions.

The negligence pleading standard under § 14(e) is not only supported by textual comparisons to § 17(a), but also by congressional intent. The Williams Act has the dual purposes of protecting shareholders from being forced to make decisions without adequate information and ensuring compliance with mandatory disclosure requirements.25 A negligence standard under § 14(e), as opposed to a scienter requirement, furthers these aims by imposing liability on the party in the best position to know of a misleading or incomplete disclosure—the defendant. Further, to allow negligent omissions or falsities is to allow companies to abrogate their duties of complete disclosure at the expense of shareholders, which runs afoul to the Williams Act’s purpose of shareholder protection.

Although the text supports a negligence standard, scienter requirements could serve an important purpose by preventing undue prejudice to non-culpable defendants. If plaintiffs are only required to plead negligence, frivolous suits may survive the motion to dismiss stage, requiring companies and tender offerors to pay out large settlements or spend significant resources on litigation. Still, requiring plaintiffs to plead scienter with particularity before discovery places an undue burden on plaintiffs who do not have access to the internal company communications they would need to establish the defendant’s culpable state of mind.26

If a private right of action exists, we must grapple with these policy implications. However, if the SEC has sole enforcement power under § 14(e), the concerns of abiding by the proper pleading standard of negligence are substantially mitigated by the absence of plaintiffs bringing suits in bad faith for the purposes of settlement extraction. Historically, § 14(e) has been read to contain a private right of action, as the Supreme Court considered it to be a key feature of the SEA in the 1964 decision of J.I. Case Co. v. Borak.27 The Court in Borak held that the judiciary had both the power and duty “to provide such remedies as are necessary to make effective the congressional purpose [of a statute].”28 The decision acknowledges that the provision at issue, § 14(a), does not make any reference to a private right of action.29 Nonetheless, in light of the SEA’s explicit purpose of protecting shareholders, the Court found that interpreting an implied private right of action was necessary to achieve that end.30

Since the Borak decision, modern jurisprudence has expressly denounced this broad remedial power of courts. In Alexander v. Sandoval, the Court adopted the position that “private rights of action to enforce federal law must be created by Congress.”31 The search for Congress’s intent begins “with [the] text and structure” of a statute, and “legal context matters only to the extent it clarifies the text.”32 Like the statute at issue in Sandoval, § 14(e) places the onus on an administrative agency to “prescribe means reasonably designed to prevent[] such acts and practices as are fraudulent, deceptive, or manipulative.”33 While the text prohibits particular conduct in connection with tender offers, it does not explicitly create a private right or remedy for shareholders. Further, like the provision in Sandoval, the Supreme Court has never explicitly established a private right of action for§14(e).34 In that case, lower courts decisions that such an implied right existed did not suffice because there was no evidence of congressional intent to ratify those decisions in subsequent amendments to the statute at issue.35 Thus, despite the decisions of lower courts in favor of that right, congressional intent as reflected in the text of the statute is the only factor that must be considered.36 In light of the Sandoval decision, courts should reconsider implying a private right of action absent clear congressional intent indicated by the text of the statute.37 Because the text of § 14(e) fails to incorporate such a plain statement, a private right of action cannot be said to exist.

The outcome most consistent with the text of § 14(e) is upholding a negligence standard and requiring sole enforcement by the SEC. That result best achieves the Williams Act’s intent to create a more complete information environment by requiring disclosure from parties engaged in tender offers.38 Admittedly, such a finding requires considering whether the SEC has the capacity to effectively enforce this statute. Per the oral arguments in Varjabedian, the SEC has attested to its willingness and capacity to undertake sole enforcement, but there remains a possibility that falsities will go unnoticed and violators will escape liability.39 However, the adoption of a negligence standard would mitigate these enforcement concerns by providing the SEC with an easier path to victory in cases where they feel that a tender offeror or target company is neglecting its fiduciary duty to shareholders in a way that may not amount to the explicit knowingness required by scienter.

If the SEC’s enforcement does prove lacking, shareholders retain the right to sue under Rule 10b-5, which has identical elements to the version of § 14(e) that litigators have been operating under since 1973.40 Thus, concluding that a private right of action does not exist under § 14(e) does not leave shareholders helpless or at the whims of the SEC. In fact, it does the opposite by introducing more stringent enforcement of § 14(e) by way of a negligence standard. At bottom, § 14(e) is currently misconstrued by the Courts of Appeals. The plain text of § 14(e) only imposes a negligence requirement, and absent a clear expression from Congress, courts should decline to infer a private right of action.

* Giulia Piccininni is a J.D. Candidate (2025) at New York University School of Law. This Contribution was developed from an issue encountered and researched during the Fall 2024 Topics in Corporate and Securities Law Seminar at New York University School of Law. This Contribution distills one side of the argument, and the views expressed herein do not necessarily represent the author’s views.

1. See 113 Cong. Rec. 854 (1967) (“This legislation will close a significant gap in investor protection under the federal securities laws by requiring the disclosure of pertinent information to stockholders [when faced with tender offers].”).

2. 15 U.S.C. § 78n(e).

3. See generally Flaherty & Crumrine Preferred Income Fund, Inc. v. TXU Corp., 565 F.3d 200, 207 (5th Cir. 2009); In re Digit. Island Sec. Litig., 357 F.3d 322, 328 (3d Cir. 2004); SEC v. Ginsburg, 362 F.3d 1292, 1297 (11th Cir. 2004); Conn. Nat’l Bank v. Fluor Corp., 808 F.2d 957, 961 (2d Cir. 1987); Adams v. Standard Knitting Mills, Inc., 623 F.2d 422, 431 (6th Cir. 1980).

4. See, e,g., Ginsburg, 362 F.3d at 1297–98.

5. 888 F.3d 399, 408 (9th Cir. 2018).

6. Petition for Writ of Certiorari, Emulex Corp. v. Varjabedian, 587 U.S. 175 (2019) (No. 18-459).

7. See Brief for the Chamber of Commerce of the United States of America as Amicus Curiae in Support of Petitioners at 7, Emulex Corp. v. Varjabedian, 587 U.S. 175 (2019) (No. 18-459) (raising the question of a private right of action under § 14(e)).

8. See 532 U.S. 275, 286 (2001).

9. See id.

10. See 480 F.2d 341, 362 (2d Cir. 1973) (holding that § 14(e) should be interpreted analogously to Rule 10b-5 to require scienter); see also, e.g., In re Digit. Island Sec. Litig., 357 F.3d at 328 (holding the same).

11. See generally, Chris-Craft Indus., 480 F.2d 341.

12. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 196 (1976) (quoting 15 U.S.C. § 78j) (interpreting Rule 10b-5 to require a showing of scienter).

13. Compare 15 U.S.C. § 78j, with 15 U.S.C. § 78n(e).

14. See Varjabedian, 888 F.3d at 406 (noting the relationship between Rule 10b-5 and § 10(b)).

15. 15 U.S.C. § 78j(b).

16. See Ernst, 425 U.S. at 212–14 (“Thus, despite the broad view of the Rule advanced by the Commission in this case, its scope cannot exceed the power granted the Commission by Congress under § 10(b).”).

17. See id.

18. See id. at 212.

19. See Varjabedian, 888 F.3d at 405–06.

20. 15 U.S.C. § 77q(a)(1)–(2).

21. Compare 15 U.S.C. § 78j and § 77q(a)(1)–(2)., with 15 U.S.C. § 78n(e).

22. Aaron v. SEC, 446 U.S. 680, 697 (1980) (citing United States v. Naftalin, 441 U.S. 768, 774 (1979) for the proposition that “each subparagraph of § 17(a) ‘proscribes a distinct category of misconduct. Each succeeding prohibition is meant to cover additional kinds of illegalities –– not to narrow the reach of the prior sections’”).

23. See id.

24. Id.

25. 17 C.F.R §§ 240.14d-100, 240.14d-101.9, 240.14e-2 (2025).

26. See Katlyn M. Bay, Corporate Dualism: Applying a Dual-Standard of Liability Under Section 14(e)’s Tender Offer Antifraud Provisions, 45 Iowa J. Corp. L. 205, 212 (2019) (“A scienter standard of liability, as opposed to a negligence standard, naturally puts a larger burden on the plaintiff to show the defendant committed a fraudulent act.”).

27. 377 U.S. 426, 430–32 (1964).

28. Id. at 433.

29. Id.

30. Id. at 432.

31. Alexander, 532 U.S. at 286 (citing Rouche Ross & Co. v. Redington, 442 U.S. 560, 578 (1979)).

32. Id. at 288.

33. 15 U.S.C. § 78n(e).

34. See Supreme Court Passes–For Now–on Rejecting an Implied Private Right of Action for Tender Offer Claims, Paul, Weiss, Rifkind, Wharton & Garrison LLP (April 25, 2019), https://www.paulweiss.com/practices/litigation/supreme-court-appellate-litigation/publications/supreme-court-passes-for-now-on-rejecting-an-implied-private-right-of-action-for-tender-offer-claims?id=28654 (acknowledging that the Supreme Court has expressly left the private right of action question open for interpretation by lower courts).

35. See Alexander, 552 U.S. at 291 (explaining that congressional silence on the private right of action when amending Title VI does not constitute “ratification” of the lower courts’ decisions, especially when the issue has not decided by the Court.)

36. See id.

37. Borak has not been outright overturned by the Supreme Court, but the Court has made clear that it “will not revert to the understanding of private causes of action represented by [Borak].” See id. at 311.

38. See United States v. O’Hagan, 521 U.S. 642, 668 (1997) (“Congress designed the Williams Act to make ‘disclosure . . . the preferred method of market regulation.’” (quoting Schreiber v. Burlington Northern, Inc., 472 U.S. 1, 9 n.8 (1985))).

39. See Transcript of Oral Argument, Emulex Corp. v. Varjabedian, 587 U.S. 175 (2019) (No. 18-459).

40. See Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 341 (2005).