Congress created the Ute Distribution Corporation (UDC) to facilitate the removal of federal oversight from certain assets of the Ute Tribe. As part of this process, UDC issued ten shares of stock to each mixed-blood member of the Tribe (the plaintiffs). First Security Bank of Utah was retained as the transfer agent for the shares and held the stock on behalf of the plaintiffs.
Gale and Haslam (the defendants), employees of the bank, purchased 1,387 shares from the plaintiffs without disclosing that non-tribal members were trading UDC shares at substantially higher prices. The defendants also failed to disclose that these non-tribal purchasers were paying them commissions and providing gratuities in connection with the transactions. In doing so, the defendants exceeded their role as transfer agents and instead actively facilitated and developed a market for UDC stock.
The plaintiffs brought suit under Securities and Exchange Commission Rule 10b-5. The district court ruled in favor of the plaintiffs. On appeal, the United States Court of Appeals for the Tenth Circuit reversed in part, holding that the plaintiffs had failed to establish reliance on the defendants’ misrepresentations. The United States Supreme Court subsequently granted certiorari.