Insider Trading

Question 1

SEC pushes the ____ theory of insider trading

Answer 1

equal access

Question 2

Classic insider trading is that fiduciaries of companies cannot ___

Answer 2

use info they receive as insiders for their own benefit

Question 3

If a tippee ____ they have a duty to disclose

Answer 3

knows tip from somebody who breached fiduciary duties

Question 4

Corporate governance issue in insider trading is that if legal executives may ___

Answer 4

manage corporation to maximize trading opps instead of for corporate value

Question 5

Directors have a statutory duty to disclose under __

Answer 5

SEC requirements to provide material info about financial condition if publicly traded

Question 6

Insider trading can raise claim under state law under __

Answer 6

Kahn v. KKR

Question 7

DGCL 141 gives directors lots of discretion ___

Answer 7

as to what they tell their investors

Question 8

In KKR, the court predicated insider trading on __

Answer 8

unjust enrichment based on misuse of confidential corporate info

Question 9

Counterargument to why insider trading a good idea

Answer 9

reveals info to the market

Question 10

Response to positive insider trading theory

Answer 10

• hedge funds won’t enter if must compete with better informed insiders
• insider’s gain another trader’s loss

Question 11

Courts have pushed back against SEC saying that just having info ___

Answer 11

doesn’t give duty to disclose

Question 12

Under SEC 16b corporate directors officers and principal SHs must ___

Answer 12

disclose every transaction in corporations equity securities

Question 13

What is a principal SH

Answer 13

at least 10% ownership

Question 14

16B authorizes a SH to bring derivative action ___

Answer 14

to recover any short-swing gains resulting from trading of statutory insiders

Question 15

Chiarella says that duty to disclose is necessary to __

Answer 15

make silence fraudulent

Question 16

Chiarella held that if the purchaser of stock has no ____ no duty to disclose

Answer 16

fiduciary or insider status

Question 17

the court found that chiarella printer was not ___ whom the sellers had ___

Answer 17

an agent, placed trust and confidence

Question 18

Rule 14e-3 creates duty to disclose or abstain from ___

Answer 18

info obtained from an insider related to tender offer nonpublic info

Question 19

Chiarella says that not every instance of financial unfairness ___

Answer 19

constitutes fraudulent activity

Question 20

Chiarella use of info was not ___ unless __

Answer 20

fraud under 10b5, affirmative duty to disclose

Question 21

Dirks was told assets of Equity Funding were ____

Answer 21

exaggerated due to fraudulent corporate practices by former officer

Question 22

Dirks told ____

Answer 22

clients about info who then traded

Question 23

The court found that Siecrest (former officer) didn’t violate fiduciary duty because ___

Answer 23

motivation was to expose fraud not to personally benefit

Question 24

O-Hagan is about ___

Answer 24

misappropriation theory

Question 25

O’Hagan held that a person is guilty of securities fraud when he ___

Answer 25

misappropriates confidential info in breach of duty to source of info

Question 26

What did O’Hagan do

Answer 26

partner in law firm not on tender offer deal but traded on it

Question 27

O’Hagan found that 14e3 was ___

Answer 27

proper use of SEC rulemaking authority

Question 28

O’Hagan violated fiduciary duty to ___ NOT __

Answer 28

law firm and Grand Met (sources of info) , Pillsbury (trading party in which he bought)

Question 29

The court affirms the SEC rulemaking power because ___

Answer 29

knows difficult to enforce tender rules and so it is empowered to choose means of enforcement (even if not explicit in the statute)