THE WHARF (HOLDINGS) LTD. et al. v. UNITED INTERNATIONAL HOLDINGS, INC., et al.

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588 OCTOBER TERM, 2000
Syllabus
THE WHARF (HOLDINGS) LTD. et al. v. UNITED
INTERNATIONAL HOLDINGS, INC., et al.
certiorari to the united states court of appeals for
the tenth circuit
No. 00–347. Argued March 21, 2001—Decided May 21, 2001
Petitioner The Wharf (Holdings) Limited orally granted respondent
United International Holdings, Inc., an option to buy 10% of the stock
in Wharf ’s Hong Kong cable system if United rendered certain services,
but internal Wharf documents suggested that Wharf never intended to
carry out its promise. United fulfilled its obligation, but Wharf refused
to permit it to exercise the option. United sued in Federal District
Court, claiming that Wharf ’s conduct violated, inter alia, § 10(b) of the
Securities Exchange Act of 1934, which prohibits using “any manipula-
tive or deceptive device or contrivance” “in connection with the pur-
chase or sale of any security.” 15 U. S. C. § 78j(b). A jury found for
United, and the Tenth Circuit affirmed.
Held: Wharf ’s secret intent not to honor the option it sold United violates
§ 10(b). Pp. 592–597.
(a) The Court must assume that the “security” at issue is not the
cable system stock, but the option to purchase that stock, because Wharf
conceded this point below. That concession is consistent with the Act’s
language defining “security” to include both “any . . . option . . . on
any security” and “any . . . right to . . . purchase” stock. § 78c(a)(10).
Pp. 593–594.
(b) Wharf ’s claim that § 10(b) does not cover oral contracts of sale is
rejected. This Court held in Blue Chip Stamps v. Manor Drug Stores,
421 U. S. 723, that the Act does not protect a person who did not actually
buy securities, but who might have done so had the seller told the truth.
But United is not a potential buyer; by providing Wharf with its serv-
ices, it actually bought the option that Wharf sold. And Blue Chip
Stamps did not suggest that oral purchases or sales fall outside the Act’s
scope. Neither is there any other convincing reason to interpret the
Act to exclude oral contracts as a class. The Act itself says that it
applies to “any contract” for a security’s purchase or sale, §§ 78c(a)(13),
(14), and oral contracts for the sale of securities are sufficiently common
that the Uniform Commercial Code and statutes of frauds in every State
consider them enforceable. Pp. 594–596.
(c) Also rejected is Wharf ’s argument that a secret reservation not
to permit the exercise of an option falls outside § 10(b) because it does

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not relate to the value of a security purchase or the consideration paid,
and hence does not implicate § 10(b)’s full disclosure policy. Even were
it the case that the Act covers only misrepresentations likely to affect
the value of securities, Wharf ’s secret reservation was such a misrepre-
sentation. To sell an option while secretly intending not to permit the
option’s exercise is misleading, because a buyer normally presumes good
faith. Similarly, the secret reservation misled United about the option’s
value, which was, unbeknownst to United, valueless. P. 596.
(d) Finally, the Court rejects Wharf ’s claim that interpreting the Act
to allow recovery in a case like this one will permit numerous plaintiffs
to bring federal securities claims that are in reality no more than ordi-
nary state breach-of-contract claims lying outside the Act’s basic objec-
tives. United’s claim is not simply that Wharf failed to carry out a
promise to sell it securities, but that Wharf sold it a security (the option)
while secretly intending from the very beginning not to honor the op-
tion. Moreover, Wharf has not shown that its concern has proved seri-
ous as a practical matter in the past or that it is likely to prove serious
in the future. Pp. 596–597.
210 F. 3d 1207, affirmed.
Breyer, J., delivered the opinion for a unanimous Court.
Paul M. Dodyk argued the cause for petitioners. With
him on the briefs was William R. Jentes.
Louis R. Cohen argued the cause for respondents. With
him on the brief were Jonathan J. Frankel, David B. Wil-
son, and Jeffrey A. Chase.
Matthew D. Roberts argued the cause for the Securities
and Exchange Commission as amicus curiae urging affirm-
ance. With him on the brief were Acting Solicitor General
Underwood, Deputy Solicitor General Kneedler, David M.
Becker, Meyer Eisenberg, Jacob H. Stillman, Katharine B.
Gresham, and Susan S. McDonald.
Justice Breyer delivered the opinion of the Court.
This securities fraud action focuses upon a company that
sold an option to buy stock while secretly intending never to
honor the option. The question before us is whether this
conduct violates § 10(b) of the Securities Exchange Act of

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1934, which prohibits using “any manipulative or deceptive
device or contrivance” “in connection with the purchase or
sale of any security.” 48 Stat. 891, 15 U. S. C. § 78j(b); see
also 17 CFR § 240.10b–5 (2000). We conclude that it does.
I
Respondent United International Holdings, Inc., a
Colorado-based company, sued petitioner The Wharf (Hold-
ings) Limited, a Hong Kong firm, in Colorado’s Federal Dis-
trict Court. United said that in October 1992 Wharf had
sold it an option to buy 10% of the stock of a new Hong Kong
cable television system. But, United alleged, at the time of
the sale Wharf secretly intended not to permit United to
exercise the option. United claimed that Wharf ’s conduct
amounted to a fraud “in connection with the . . . sale of [a]
security,” prohibited by § 10(b), and violated numerous state
laws as well. A jury found in United’s favor. The Court of
Appeals for the Tenth Circuit upheld that verdict. 210 F. 3d
1207 (2000). And we granted certiorari to consider whether
the dispute fell within the scope of § 10(b).
The relevant facts, viewed in the light most favorable to
the verdict winner, United, are as follows. In 1991, the
Hong Kong Government announced that it would accept bids
for the award of an exclusive license to operate a cable
system in Hong Kong. Wharf decided to prepare a bid.
Wharf ’s chairman, Peter Woo, instructed one of its managing
directors, Stephen Ng, to find a business partner with cable
system experience. Ng found United. And United sent
several employees to Hong Kong to help prepare Wharf ’s
application, negotiate contracts, design the system, and ar-
range financing.
United asked to be paid for its services with a right to
invest in the cable system if Wharf should obtain the license.
During August and September 1992, while United’s employ-
ees were at work helping Wharf, Wharf and United negoti-
ated about the details of that payment. Wharf prepared a

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draft letter of intent that contemplated giving United the
right to become a co-investor, owning 10% of the system.
But the parties did not sign the letter of intent. And in
September, when Wharf submitted its bid, it told the Hong
Kong authorities that Wharf would be the system’s initial
sole owner, Lodging to App. AY–4, although Wharf would
also “consider” allowing United to become an investor, id.,
at AY–6.
In early October 1992, Ng met with a United representa-
tive, who told Ng that United would continue to help only if
Wharf gave United an enforceable right to invest. Ng then
orally granted United an option with the following terms: (1)
United had the right to buy 10% of the future system’s stock;
(2) the price of exercising the option would be 10% of the
system’s capital requirements minus the value of United’s
previous services (including expenses); (3) United could ex-
ercise the option only if it showed that it could fund its 10%
share of the capital required for at least the first 18 months;
and (4) the option would expire if not exercised within six
months of the date that Wharf received the license. The
parties continued to negotiate about how to write documents
that would embody these terms, but they never reduced the
agreement to writing.
In May 1993, Hong Kong awarded the cable franchise to
Wharf. United raised $66 million designed to help finance
its 10% share. In July or August 1993, United told Wharf
that it was ready to exercise its option. But Wharf refused
to permit United to buy any of the system’s stock. Contem-
poraneous internal Wharf documents suggested that Wharf
had never intended to carry out its promise. For example,
a few weeks before the key October 1992 meeting, Ng had
prepared a memorandum stating that United wanted a right
to invest that it could exercise if it was able to raise the
necessary capital. A handwritten note by Wharf ’s Chair-
man Woo replied, “No, no, no, we don’t accept that.” App.
DT–187; Lodging to App. AI–1. In September 1993, after

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meeting with the Wharf board to discuss United’s invest-
ment in the cable system, Ng wrote to another Wharf execu-
tive, “How do we get out?” Id., at CY–1. In December
1993, after United had filed documents with the Securities
and Exchange Commission (SEC) representing that United
was negotiating the acquisition of a 10% interest in the cable
system, an internal Wharf memo stated that “[o]ur next
move should be to claim that our directors got quite upset
over these representations . . . . Publicly, we do not ac-
knowledge [United’s] opportunity” to acquire the 10% inter-
est. Id., at DF–1 (emphasis in original). In the margin of
a December 1993 letter from United discussing its expecta-
tion of investing in the cable system, Ng wrote, “[B]e careful,
must deflect this! [H]ow?” Id., at DI–1. Other Wharf
documents referred to the need to “back ped[al],” id., at
DG–1, and “stall,” id., at DJ–1.
These documents, along with other evidence, convinced
the jury that Wharf, through Ng, had orally sold United an
option to purchase a 10% interest in the future cable sys-
tem while secretly intending not to permit United to exercise
the option, in violation of § 10(b) of the Securities Exchange
Act and various state laws. The jury awarded United com-
pensatory damages of $67 million and, in light of “circum-
stances of fraud, malice, or willful and wanton conduct,” App.
EM–18, punitive damages of $58.5 million on the state-law
claims. As we have said, the Court of Appeals upheld the
jury’s award. 210 F. 3d 1207 (CA10 2000). And we granted
certiorari to determine whether Wharf ’s oral sale of an op-
tion it intended not to honor is prohibited by § 10(b).
II
Section 10(b) of the Securities Exchange Act makes it “un-
lawful for any person . . . [t]o use or employ, in connection
with the purchase or sale of any security . . . , any manipula-
tive or deceptive device or contrivance in contravention of

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such rules and regulations as the [SEC] may prescribe.” 15
U. S. C. § 78j.
Pursuant to this provision, the SEC has promulgated Rule
10b–5. That Rule forbids the use, “in connection with the
purchase or sale of any security,” of (1) “any device, scheme,
or artifice to defraud”; (2) “any untrue statement of a mate-
rial fact”; (3) the omission of “a material fact necessary in
order to make the statements made . . . not misleading”; or
(4) any other “act, practice, or course of business” that “oper-
ates . . . as a fraud or deceit.” 17 CFR § 240.10b–5 (2000).
To succeed in a Rule 10b–5 suit, a private plaintiff must
show that the defendant used, in connection with the pur-
chase or sale of a security, one of the four kinds of manipula-
tive or deceptive devices to which the Rule refers, and must
also satisfy certain other requirements not at issue here.
See, e. g., 15 U. S. C. § 78j (requiring the “use of any means
or instrumentality of interstate commerce or of the mails, or
of any facility of any national securities exchange”); Ernst &
Ernst v. Hochfelder, 425 U. S. 185, 193 (1976) (requiring sci-
enter, meaning “intent to deceive, manipulate, or defraud”);
Basic Inc. v. Levinson, 485 U. S. 224, 231–232 (1988) (requir-
ing that any misrepresentation be material); id., at 243 (re-
quiring that the plaintiff sustain damages through reliance
on the misrepresentation).
In deciding whether the Rule covers the circumstances
present here, we must assume that the “security” at issue is
not the cable system stock, but the option to purchase that
stock. That is because the Court of Appeals found that
Wharf conceded this point. 210 F. 3d, at 1221 (“Wharf does
not contest on appeal the classification of the option as a
security”). That concession is consistent with the language
of the Securities Exchange Act, which defines “security” to
include both “any . . . option . . . on any security” and “any
. . . right to . . . purchase” stock. 15 U. S. C. § 78c(a)(10)
(1994 ed., Supp. V); see also Blue Chip Stamps v. Manor
Drug Stores, 421 U. S. 723, 751 (1975) (“[H]olders of . . . options,

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and other contractual rights or duties to purchase . . . securi-
ties” are “ ‘purchasers’ . . . of securities for purposes of Rule
10b–5”). And Wharf ’s current effort to deny the concession,
by pointing to an ambiguous statement in its Court of Ap-
peals reply brief, comes too late and is unconvincing. See
Reply Brief for Petitioners 16, n. 8 (citing Reply Brief for
Appellants in Nos. 97–1421, 98–1002 (CA10), pp. 5–6). Con-
sequently, we must decide whether Wharf ’s secret intent not
to honor the option it sold United amounted to a misrepre-
sentation (or other conduct forbidden by the Rule) in connec-
tion with the sale of the option.
Wharf argues that its conduct falls outside the Rule’s
scope for two basic reasons. First, Wharf points out that
its agreement to grant United an option to purchase shares
in the cable system was an oral agreement. And it says that
§ 10(b) does not cover oral contracts of sale. Wharf points
to Blue Chip Stamps, in which this Court construed the Act’s
“purchase or sale” language to mean that only “actual pur-
chasers and sellers of securities” have standing to bring
a private action for damages. See 421 U. S., at 730–731.
Wharf notes that the Court’s interpretation of the Act flowed
in part from the need to protect defendants against lawsuits
that “turn largely on which oral version of a series of occur-
rences the jury may decide to credit.” Id., at 742. And it
claims that an oral purchase or sale would pose a similar
problem of proof and thus should not satisfy the Rule’s “pur-
chase or sale” requirement.
Blue Chip Stamps, however, involved the very different
question whether the Act protects a person who did not actu-
ally buy securities, but who might have done so had the
seller told the truth. The Court held that the Act does not
cover such a potential buyer, in part for the reason that
Wharf states. But United is not a potential buyer; by pro-
viding Wharf with its services, it actually bought the option
that Wharf sold. And Blue Chip Stamps said nothing to
suggest that oral purchases or sales fall outside the scope of

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the Act. Rather, the Court’s concern was about “the abuse
potential and proof problems inherent in suits by investors
who neither bought nor sold, but asserted they would have
traded absent fraudulent conduct by others.” United States
v. O’Hagan, 521 U. S. 642, 664 (1997). Such a “potential pur-
chase” claim would rest on facts, including the plaintiff ’s
state of mind, that might be “totally unknown and unknow-
able to the defendant,” depriving the jury of “the benefit of
weighing the plaintiff ’s version against the defendant’s ver-
sion.” Blue Chip Stamps, supra, at 746. An actual sale,
even if oral, would not create this problem, because both par-
ties would be able to testify as to whether the relevant
events had occurred.
Neither is there any other convincing reason to interpret
the Act to exclude oral contracts as a class. The Act itself
says that it applies to “any contract” for the purchase or sale
of a security. 15 U. S. C. §§ 78c(a)(13), (14). Oral contracts
for the sale of securities are sufficiently common that the
Uniform Commercial Code and statutes of frauds in every
State now consider them enforceable. See U. C. C. § 8–113
(Supp. 2000) (“A contract . . . for the sale or purchase of a
security is enforceable whether or not there is a writing
signed or record authenticated by a party against whom en-
forcement is sought”); see also 2C U. L. A. 77–81 (Supp. 2000)
(table of enactments of U. C. C. Revised Art. 8 (amended
1994)) (noting adoption of § 8–113, with minor variations, by
all States except Rhode Island and South Carolina); R. I.
Gen. Laws § 6A–8–322 (Supp. 1999) (repealed effective July
1, 2001) (making oral contracts for the sale of securities en-
forceable); § 6A–8–113 (2000 Cum. Supp.) (effective July 1,
2001) (same); S. C. Code Ann. § 36–8–113 (Supp. 2000) (same);
U. C. C. § 8–113 Comment (Supp. 2000) (“[T]he statute of
frauds is unsuited to the realities of the securities business”).
Any exception for oral sales of securities would significantly
limit the Act’s coverage, thereby undermining its basic
purposes.

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Wharf makes a related but narrower argument that the
Act does not encompass oral contracts of sale that are unen-
forceable under state law. But we do not reach that issue.
The Court of Appeals held that Wharf ’s sale of the option
was not covered by the then-applicable Colorado statute of
frauds, Colo. Rev. Stat. § 4–8–319 (repealed 1996), and hence
was enforceable under state law. Though Wharf disputes
the correctness of that holding, we ordinarily will not con-
sider such a state-law issue, and we decline to do so here.
Second, Wharf argues that a secret reservation not to per-
mit the exercise of an option falls outside § 10(b) because it
does not “relat[e] to the value of a security purchase or the
consideration paid”; hence it does “not implicate [§ 10(b)’s]
policy of full disclosure.” Brief for Petitioners 25, 26
(emphasis deleted). But even were it the case that the Act
covers only misrepresentations likely to affect the value of
securities, Wharf ’s secret reservation was such a misrepre-
sentation. To sell an option while secretly intending not to
permit the option’s exercise is misleading, because a buyer
normally presumes good faith. Cf., e. g., Restatement (Sec-
ond) of Torts § 530, Comment c (1976) (“Since a promise nec-
essarily carries with it the implied assertion of an intention
to perform[,] it follows that a promise made without such
an intention is fraudulent”). For similar reasons, the secret
reservation misled United about the option’s value. Since
Wharf did not intend to honor the option, the option was,
unbeknownst to United, valueless.
Finally, Wharf supports its claim for an exemption from
the statute by characterizing this case as a “disput[e] over
the ownership of securities.” Brief for Petitioners 24.
Wharf expresses concern that interpreting the Act to allow
recovery in a case like this one will permit numerous plain-
tiffs to bring federal securities claims that are in reality no
more than ordinary state breach-of-contract claims—actions
that lie outside the Act’s basic objectives. United’s claim,
however, is not simply that Wharf failed to carry out a prom-

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ise to sell it securities. It is a claim that Wharf sold it a
security (the option) while secretly intending from the very
beginning not to honor the option. And United proved that
secret intent with documentary evidence that went well be-
yond evidence of a simple failure to perform. Moreover,
Wharf has not shown us that its concern has proved serious
as a practical matter in the past. Cf. Threadgill v. Black,
730 F. 2d 810, 811–812 (CADC) (per curiam) (suggesting in
1984 that contracting to sell securities with the secret reser-
vation not to perform one’s obligations under the contract
violates § 10(b)). Nor does Wharf persuade us that it is
likely to prove serious in the future. Cf. Private Securities
Litigation Reform Act of 1995, Pub. L. 104–67, § 21D(b)(2),
109 Stat. 747, codified at 15 U. S. C. § 78u–4(b)(2) (1994 ed.,
Supp. V) (imposing, beginning in 1995, stricter pleading re-
quirements in private securities fraud actions that, among
other things, require that a complaint “state with particular-
ity facts giving rise to a strong inference that the defendant
acted with the required [fraudulent] state of mind”).
For these reasons, the judgment of the Court of Appeals is
Affirmed.