Securities Fraud Flashcards
The secondary market is when __
investors trade securities with one another
The secondary market indirectly impacts the primary market by ___
providing liquidity to investors
A liquid secondary market supports the accumulation of ___
large minority blocks by activist SHs without significant price imapct
Liquidity helps overcome __
collective action problems
How does liquidity impact company’s own stock holdings
If file with SEC can sell additional stock OR buy back
Stock and options are used as performance pay for executives because ___
value tracks stock prices
When one party has more info than another it reduces ___
liquidity
What is the Efficient Capital Market Hypothesis (ECMH)?
liquid market security prices reflect their fundamental value based on publicly available info
Disclosure enforcement from companies is handled mostly ___
by SEC
SEA designates the SEC to _____
- issue additional rules
- enforce act and rules it issues
Two options when corporations don’t disclose truthfully
- SEC brings enforcement action
- Specialized plaintiff lawsuit files securities fraud action
Questions to determine if party has a private right of action
- class of persons statute designed to protect
- clear intent to create or deny private remedy
- private remedy consistent with statutory purpose?
- rights traditionally relegated to state law
____ prohibits fraud in purchase of sales of securities
10b5
10b5 is a catch all provision in that it ___
applies to all securities (registered or not) but it must catch fraud
10b5 (about material facts) makes it unlawful to make ___ or omit __
untrue statement of material fact, omit necessary material fact
Securities fraud cases focus on whether ___
info misleading and material
Insider trading cases focus on whether D ___
had access to inside info and improperly used it
Elements of a 10b5 claim
- false/misleading statement
- about material fact in connection with purchase/sale of stock
- made with scienter
- reasonable reliance by the plaintiff
- causing injury to plaintiff
10b5 is not explicit about ___
- intent
- reliance
-harm
-duty to disclose
What are fraud on the market cases?
class actions that address misrepresentations made to the market as a whole
Basic reliance requires that you ___
bought or sold shares (can’t say would’ve sold had you knew)
Common law fraud elements
- misrepresentation
- reliance
- action
- causation
- harm
Fraud on the market says that ____ are sufficient to establish reliance
changes in share price
Fraud on the market presumes that __
share prices reflect fundamental value
10b5 and common law fraud have __
similar elements with special meaning in context of 10b5
Basic doesn’t require plaintiffs to show they ___ to establish reliance
listened to/read misleading info
Basic elements for securities fraud
- alleged misrepresentations publicly known
- were material
- stock traded in an efficient market
- plaintiff traded stock between time misrepresentations made and when truth revealed
Basic company had made 3 public statements ___
denying it was engaged in any merger negotiations
Basic directors had had conversation about ___
possible merger
Basic held that company statements about ____ can be material under 10b5
preliminary merger negotiations (can be, not must be)
Basic held that based on fraud on the market there is a ________ that individual members of the class relied on false statements
rebuttable presumption
What does Basic offer for if company hadn’t said anything at all?
Depends on whether amounts to an omission (fact-specific)
Basic says materiality of statements depends on ____
probability that event will occur + magnitude of event
Basic says that requiring each individual plaintiff to prove actual reliance would ___
place unnecessary burden
Basic dissent says that stocks don’t have ___
fundamental value
Basic dissent says that investors don’t ___
rely on integrity of market price (may trade because believes inaccurately reflects)
Halliburton held that Basic’s presumption ___
can be rebutted to kill the class (not overruling Basic)
Halliburton company made series of misrepresentations about __
liability in asbestos litigation + anticipated merger benefits
Halliburton held that defendants can show evidence that __
misrepresentation did not actually affect the market price to rebut reliance
Halliburton rebuts reliance by saying that ____
other things than asbestos litigation happened to affect the stock price
Halliburton is in part a reflection on ___
vitality of ECMH
