33 and 34 ACT

Question 1

Rule 10b-5 (Generally)

Answer 1

Covers fraudulent conduct in connection to the purchase or sale of a security in interstate commerce.

There has to be reliance and damages.
Greatest impact is to prohibit insider trading.

Question 2

Insider Information

Answer 2

Information not disclosed to the public that an investor would think is important when deciding whether or not to invest in a security

Question 3

Rule 16b

Answer 3

Prohibits short-swing trading for 10% owners of stock, directors, officers, and employees. It specifically prohibits trading within 6 months.

Question 4

Rule 10b-5 (More Specifically)

Answer 4

Under the rule it is unlawful for any person, directly or indirectly, by use of any means or instrumentality of interstate commerce or the mails, or of any facility of any national securities exchange, to:

i. Employ any device, scheme, or artifice to defraud
ii. Make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or
iii. Engage in any act, practice, or course of business that operates or would operate as a fraud or a deceit upon any person, in connection with the purchase or sale of any security .

A violation of the rule can result in a private suit for damages, and SEC suit for injunctive relief, or criminal prosecution.

Question 5

Chiarella

Answer 5

Liability for insider trading under rule 10b-5 is conditioned on the breach of a fiduciary duty to the source of information. “Duty to disclose does not arise from the mere possession of nonpublic market information”

Question 6

Fraud on the Market Theory

Answer 6

Relies on efficient market hypothesis- idea is that stock value only changes with new information. Therefore false information will effect the value for all stockholders, even if they didnt rely on the information.