MO Corps: Fed SEC Laws

Question 1

Essential Elements of Sec 10(b) anti-fraud action are:

Answer 1

1. Scienter
2. Deception
3. Actual purchase or sale of securities
4. Reliance
5. Loss causation

Question 2

Scienter

Answer 2

intent to deceive

Question 3

Deception

Answer 3

1. Liar–> misrepresentation of material fact, or failure to disclose a material fact in breach of fiduciary duty
2. Insider Trading: Misappropriator; Tipper; Tippee

Question 4

Misappropriator

Answer 4

one who misappropriates (steals, converts) material nonpublic information and uses it to purchase or sell securities

Question 5

Tipper

Answer 5

One who tips inside information for personal benefit to another who trades on it;

Question 6

Tippee

Answer 6

One who receives inside information and trades on it with knowledge that the information was disclosed in breach of the tipper’s fiduciary duty.

Question 7

In addition, in a private action for damages, investors must also prove;

Answer 7

Reliance and Loss causation

Question 8

Reliance

Answer 8

Investors actually relied on fraud or invested at a market price infected by fraud (e.g. fraud on market)

Question 9

Loss Causation

Answer 9

the fraud not only induced investors to purchase or sell, but also caused their economic losses

Question 10

Ronco Corp intentionally issues a misleading press release that Pickens has expressed an interest in acquiring a major block of its stock. The release fails to indicate that it is Slim Pickens and not Boone Pickens who is interested. IN reliance on this press release, Conviser does not sell his Ronco stock. Does Conviser have a Section 10(b) COA?

Answer 10

NO. Although there was scienter (an intent to deceive) and deception (a misleading press release) there was no liability because Convisor did not actually sell or buy stock in reliance on that fraud.

Question 11

Section 16(b)

Answer 11

Strict Liability for Short-Swing Trading Profits

Question 12

When does 16(b) apply?

Answer 12

Big Corps that must report to SEC,

big shot D (officer, director or more than 10% SH)

Question 13

16(b) SL if:

Answer 13

Defendant profits from buying and selling (or selling and buying) corp’s own stock within 6 months of each other.

Question 14

What happens when 16(b) applies? The corporation may sue the D to recover:

Answer 14

Disgorge all profits made by D from buying and selling corp’s own stock within 6 months.

Question 15

Sarbanes Oxley Act of 2002

Answer 15

Reporting Corps, CEO and CFO must certify that based on Officer’s KNOWLEDGE, reports filed do not contain falsehoods.

Question 16

Willfully certifying a false report could bring

Answer 16

$5million fine and 20 years in prison

Question 17

If false reports have to be corrected and restated the corporation may recover–

Answer 17

Officer’s BENEFITS made from the trading the company’s securities within 12 months after the false reports were filed.

Question 18

Corporations (directly or derivatively) may also recover

Answer 18

Any BENEFITS made by officers from trading corporation’s stock during “black out” periods when employees are prohibited from trading in their retirement plan’s securities