Stock Issues

Question 1

Issuance of stock

Answer 1

consideration = at least par value

par value = minimum issuance price
- shares issued for property = good faith belief at least par value

shares issued

Question 2

par value

Answer 2

minimum issuance price

shares issued for property = good faith belief at least par value

Question 3

shares issued

Answer 3

• directors = personally liable

- buyer of shares = personally liable

Question 4

Section 16(b)

Answer 4

Section 16(b) prohibits a director/officer/10% shareholder of a publicly traded corp on a nat’l stock exchange OR a corp w/ assets of over $10 mill AND 500 SHs from purchasing and selling/selling and purchasing stock of the corp WITHIN 6 MONTHS

Profits = match highest sales price against lowest purchase price w/in 6 month period

strict liability provision = no defenses

Question 5

Section 16(b) applicable corporations

Answer 5

$10 mill in assets AND 500 SHs

Listed on Nat’l Stock Exchange

Question 6

Defenses to Section 16(b)

Answer 6

No defenses

Strict liability

Question 7

Rule 10(b)(5)

Answer 7

Rule 10(b)(5) prohibits the use of an instrumentality of interstate commerce in any scheme to defraud/make material misrepresentations/omissions/in any other way use fraud in the purchase/sale of securities.

An insider must either disclose inside info OR not trade in the securities

Question 8

Deception for Rule 10(b)(5)

Answer 8

• misstatements of material fact
• failure to disclose
• insider trading

Question 9

Elements of Rule 10(b)(5)

Answer 9

(1) Deception (misstatements of material fact; failure to disclose; insider trading);
(2) in connection with the purchase/sale of a security
(3) in interstate commerce
(4) scienter = intent to deceive
(5) reliance = PRIVATE ACTIONS ONLY
(6) damages = PRIVATE ACTIONS ONLY

Question 10

What should an insider do?

Answer 10

An insider must either disclose inside info OR not trade in the securities

Question 11

Insider Trading - ppl involved

Answer 11

Insiders = Person who owes a fiduciary duty to the corporation

Misappropriation = Where the person uses + trades on material inside information that he knows/should know is material inside information

Tippers & Tippees = Corporate insider is liable for “tipping” if he has a fiduciary relationship w/ the corporation and discloses material inside info to a “tippee,” who trades on the basis of that info

Question 12

Insiders

Answer 12

Person who owes a fiduciary duty to the corporation

Question 13

Misappropriation

Answer 13

Where the person uses + trades on material inside information that he knows/should know is material inside information

Question 14

Tippers and Tippees

Answer 14

Corporate insider is liable for “tipping” if he has a fiduciary relationship w/ the corporation and discloses material inside info to a “tippee,” who trades on the basis of that info

Question 15

Tippers

Answer 15

People who disclose material inside information for personal benefit to someone else who trades on the basis of that info

Question 16

Tippees

Answer 16

Tippees can be found liable if he/she trades on information received w/ knowledge that tipper was breaching a fid. duty by disclosing the information

Question 17

Tipping

Answer 17

Corporate insider is liable for “tipping” if he has a fiduciary relationship w/ the corporation and discloses material inside info to a “tippee,” who trades on the basis of that info

Question 18

Sarbanes-Oxley Act

Answer 18

CEOS + CFOS must certify that based on their knowledge financial reports files w/ the SEC do not contain MATERIAL MISSTATEMENTS/OMISSIONS and do fairly present the company’s financial position

Applicable to: $10 million in assets + 500 SHs, listed on nat’l stock exchange

penalty: 20 yrs in prison + 5 million fine

civil liability = CEOs and CFOs

• false reports
• insider trading during pension black-out periods