Homework Help

Business Law Chapter 42 Homework Pillsbury Transaction That Obtained While Doing Work

Page Count
5 pages
Word Count
2617 words
Book Title
Business Law: Text and Cases 14th Edition
Authors
Frank B. Cross, Kenneth W. Clarkson, Roger LeRoy Miller
ALTERNATE CASE PROBLEM ANSWERS
CHAPTER 42
INVESTOR PROTECTION, INSIDER TRADING,
AND CORPORATE GOVERNANCE
42-1A. Violations of the 1934 Act
The court refused to dismiss the complaint. The court explained, “A statement is material if its
disclosure would alter the total mix of facts available to an investor and if there is a substantial
likelihood that a reasonable shareholder would consider it important to the investment decision.
In that regard, it appears to the Court that disclosure of the fact that Defendants had not yet en-
tered into a contract with IBM to design and build the Web site would certainly have been con-
sidered an important part of an investment decision by any shareholder.” The court concluded,
“Defendants had no reasonable basis to believe that the Web site was in its ‘final development’
42-2A. Insider reporting and trading
The court ordered Bleakney to disgorge his profits. The court explained that Section 16(b) of the
Securities Exchange Act of 1934 precludes corporate insiders from making short-swing profits
from transactions in the corporation’s stock. “The statute requires disgorgement to the company
of any profit derived from the matching of any purchase and any sale of a . . . security . . .
within a six-month period by a statutory insider, irrespective of intent or whether overall trading
during that six months (i.e., all sales and purchases combined) resulted in a loss. For the statute
to apply, it is not necessary to show any actual misuse of inside information or of any unlawful
B-2 APPENDIX B: ALTERNATE CASE PROBLEM ANSWERSCHAPTER 42
intent. Rather, Section 16(b) operates mechanically, and . . . imposes liability without fault.” In
this case, Bleakney was an NMC officer “in November of 1998, when he sold the shares at is-
423A. Insider trading
The most likely allegation in these circumstances was that Scott violated Section 10(b) and SEC
Rule 10b-5 by communicating material nonpublic information to Mark and Jordan, who then
bought EZ stock based on that information. To establish liability under Section 10(b) and SEC
42-4A. Definition of a security
The federal district court in which this case was brought held that the investment contracts were
securities within the meaning of the Securities Act of 1933—a “contract, transaction or scheme
whereby a person invests his money (1) in a common enterprise and (2) is led to expect profits
(3) solely from the efforts of the promoter or a third party.” The court acknowledged that the ef-
forts of the promoter, after the investment, were “ministerial in nature” but emphasized that the
pre- and post-investment efforts should be looked at as a whole. The court also stated that the
post-investment efforts were “critical since the promoter, not the investor, has the contractual
42-5A. Section 10(b)
The district court dismissed the complaint, and the plaintiffs appealed. The U.S. Court of Ap-
peals for the Second Circuit affirmed. Both courts reasoned that GE’s motive was not enough to
42-6A. SEC Rule 10b-5
The court held that Falbo was liable under the misappropriation theory. Grand Met placed Falbo
in a position of trust and confidence, which, like the restrictions of a fiduciary relationship, pro-
hibited him from taking advantage of the position for his personal gain. Despite this responsibil-
42-7A. Definition of a security
The court held that the franchises were investments required to be registered under the Securi-
ties Act of 1933. The court ordered the Levines to stop selling the franchises, refund the inves-
tors’ money, and pay damages at the “highest allowable level.” The court pointed out that a se-
B-4 APPENDIX B: ALTERNATE CASE PROBLEM ANSWERSCHAPTER 42
achieve and maintain a five percent (5%) market share of electric power residential customers in
428A. Violations of the 1934 act
Five elements are required to establish a violation of Rule 10b-5. A plaintiff must show (1) a ma-
terial misrepresentation or omission of fact, (2) scienter or intent to defraud, (3) a connection
with the purchase or sale of a security, (4) causation, and (5) economic loss. In this case, Zucco
429A . Insider trading
No. These allegations are not sufficient to show a violation of Rule10b-5 for insider trading
claims because the complaint was too general. The allegations were insufficient to state Section
10(b) and Rule 10b-5 insider trading claims against corporate insiders, who had traded in stock
42-10A. A QUESTION OF ETHICS
1. One cannot escape the suspicion that Willis realized that his use of the inside in-
formation was, at a minimum, unethical. More than perhaps any other members of the medical
APPENDIX B: ALTERNATE CASE PROBLEM ANSWERSCHAPTER 42 B-5
profession, psychiatrists, due to the nature of their profession, have a duty to hold information
2. It would seem unlikely that Willis’s individual investment, in itself, would be harmful to
Weill’s interests. It is conceivable, however, that even by telling just one other personthe
stockbroker—Willis might have caused Weill’s husband and/or BankAmerica to eventually learn
(because the stockbroker could have informed others) that Weill had “leaked” the information,
3. One could simply argue that it would be basically unfair to allow other persons

Trusted by Thousands of
Students

Here are what students say about us.

Copyright ©2022 All rights reserved. | CoursePaper is not sponsored or endorsed by any college or university.