Corporations 39-45

Question 1

What does Rule 10b-5 prohibit?

Answer 1

The use of any means or instrumentality of interstate commerce in any scheme to defraud, make material misrepresentations or omissions, or in any other way use fraud in the purchase and/or sale of securities.

Priority: Medium

Question 2

What are the elements of a Rule 10b-5 claim?

Answer 2

That the defendant:

Engaged in a fraudulent scheme or device;

That was relied upon;

In connection with the purchase/sale of securities;

Acted with scienter;

Used some means of interstate commerce; AND

Caused damages.

Priority: Medium

Question 3

What does a fraudulent scheme or device include?

Answer 3

It includes:

Misrepresentation of material facts;

Insider trading; OR

Tipping.

Priority: Medium

Question 4

What is an “insider”?

Answer 4

A person that discloses non-public information that a reasonable trader would want to know before buying/selling stock OR abstaining from trading.

Priority: Medium

Question 5

What does Section 16(b) require of a director, shareholder, or officer?

Answer 5

That if they own more than 10% of a corporation, they must surrender any profit realized to the corporation from the sale or purchase of equity securities within a 6 month period when the corporation:

Is publicly traded; OR

Has more than 10 million in assets and at least 2,000 shareholders.

Priority: Medium

Question 6

Upon Dissolution, in what order are corporate assets distributed?

Answer 6

Outside creditors

Inside creditors

Shareholders

Priority: Medium

Question 7

Under the Deep Rock Doctrine, when will the claims of shareholders (who make a loan to the corporation) be subordinated to the claims of outside creditors?

Answer 7

If the corporation:

was undercapitalized; OR

the shareholder acted wrongly.

Priority: Low