532 U.S. 588 (2001)
Wharf (Holdings) Ltd. v.
Does a seller's undisclosed, present intention not to honor an option—sold to a counterparty in connection with a business venture—constitute fraud "in connection with the purchase or sale of any security" under §10(b) of the Securities Exchange Act and Rule 10b-5, even if the option was oral and never exercised?
Section 10(b) of the Securities Exchange Act of 1934 makes it unlawful to use or employ, in connection with the purchase or sale of any security, any manipulative or deceptive device or contrivance, in contravention of SEC rules. Rule 10b-5 prohibits making any untrue statement of a material fact or omitting to state a material fact necessary to make statements not misleading, in connection with the purchase or sale of any security. An "option" is expressly included within the definition of "security" under the Exchange Act. A misrepresentation about one's present intention to perform is a misstatement of existing fact, and concealing that intention may constitute an actionable omission. The "purchase or sale" element is satisfied by the transaction in which the option itself is sold, regardless of whether the option is ultimately exercised.
Yes. Selling an option while secretly intending not to honor it constitutes a deceptive act in connection with the purchase or sale of a security under §10(b) and Rule 10b-5. An option is a security, and the sale of that option—whether or not it is later exercised and whether or not the agreement is oral—falls within the scope of the federal securities laws.
Wharf clarifies that options are fully within the protective scope of §10(b) and Rule 10b-5 and that a seller's undisclosed, present intention not to perform transforms a promise into a misrepresentation of existing fact. For students, the case delineates the boundary between nonactionable breach of contract and actionable securities fraud: the critical distinction is the speaker's contemporaneous state of mind at the time of sale. Wharf also confirms that §10(b) applies even where the option is oral and unexercised, and that the "in connection with" requirement is met when the deception pertains to the very security sold.