The act which created the SEC, outlawed manipulative and abusive practices in the issuance of securities, required registration of stock exchanges, brokers, dealers, and listed securities, and required disclosure of certain financial information and insider trading.

Section 10(b) of the Securities Exchange Act of 1934 makes it unlawful for “any person … [t]o use or employ, in connection with the purchase or sale of any security registered on a national securities exchange … any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.” 15 U.S.C. § 78j(b). One such rule promulgated under the Act is SEC Rule 10b-5, which provides, inter alia, “It shall be unlawful for any person … [t]o engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.” 17 C.F.R. § 240.10b-5(c).

Section 20(a) of the Act makes certain “controlling” individuals also liable for violations of section 10(b) and its underlying regulations. Specifically, section 20(a) provides:

Every person who, directly or indirectly, controls any person liable under any provision of this chapter or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action.

15 U.S.C. § 78t(a). Thus, a defendant employee of a corporation who has violated the securities laws will be jointly and severally liable to the plaintiff, as long as the plaintiff demonstrates “a primary violation of federal securities law” and that “the defendant exercised actual power or control over the primary violator.” No. 84 Employer-Teamster Joint Council Pension Trust Fund v. Am. W. Holding Corp. (“America West”), 320 F.3d 920, 945 (9th Cir.2003) (quoting Howard v. Everex Sys., Inc., 228 F.3d 1057, 1065 (9th Cir.2000)) (quotation marks omitted); Paracor Fin., Inc. v. Gen. Elec. Capital Corp., 96 F.3d 1151, 1161 (9th Cir.1996). This inquiry is normally an “intensely factual question.” Paracor Finance, 96 F.3d at 1161 (quoting Arthur Children’s Trust v. Keim, 994 F.2d 1390, 1396 (9th Cir.1993)). Section 20(a) claims may be dismissed summarily, however, if a plaintiff fails to adequately plead a primary violation of section 10(b). In re VeriFone Sec. Litig., 1,1 F.3d 865 (9th Cir.1993). See, e.g., In re Metawave Commc’ns Corp. Sec. Litig., 298 F.Supp.2d 1056, 1087 (W.D.Wash.2003).

Five elements are required in order to prove a primary violation of Rule 10b-5. In particular, a plaintiff must demonstrate “(1) a material misrepresentation or omission of fact, (2) scienter, (3) a connection with the purchase or sale of a security, (4) transaction and loss causation, and (5) economic loss.” Daou, 411 F.3d at 1014. At the pleading stage, a complaint stating claims under section 10(b) and Rule 10b-5 must satisfy the dual pleading requirements of Federal Rule of Civil Procedure 9(b) and the PSLRA.