Melvin Lyttle told John Montana and Paul Knight about a "Trading Program" that purportedly would buy and sell securities in deals that were fully insured, as well as monitored and controlled by the Federal Reserve Board. Without checking the details or even verifying whether the Program existed, Montana and Knight, with Lyttle's help, began to sell interests in the Program to investors.

For a minimum investment of $1 million, the investors were promised extraordinary rates of returnfrom 10 percent to as much as 100 percent per weekwithout risk. They were also told that the Program would "utilize banks that can ensure full bank integrity of The Transaction whose undertaking[s] are in complete harmony with international banking rules and protocol and who guarantee maximum security of a Funder's Capital Placement Amount." Nothing was required but the investors' funds and their silencethe Program was to be kept secret. Over a four-month period, Montana raised nearly $23 million from twenty-two investors. The promised gains did not accrue, however. Instead, Montana, Lyttle, and Knight depleted the investors' funds in high-risk trades or spent the funds on themselves. [SEC v. Montana, 464 F.Supp.2d 772 (S.D.Ind. 2006)] (See Securities Exchange Act of 1934.) (605, Miller)

1. The Securities and Exchange Commission (SEC) filed a suit against Montana alleging violations of Section 10(b) and SEC Rule 10b-5. What is required to establish a violation of these laws? Explain how and why the facts, in this case, meet or fail to meet, these requirements.
2. Ultimately, about half of the investors recouped the amount they had invested. Should the others be considered at least partly responsible for their own losses? Discuss.