Answer:
Definitions
Insider Trading - happens when an insider, person working with the company, uses information of his company to achieve an unfair advantage in an investment.
The lawyer of the firm may be liable for insider trading because as the lawyer for the company which hired him he has a responsibility to the company not to inform others of their potential rise in stock prices.
Furthermore, the secretary is liable for insider trading because she informed her stockbroker friend this information which he acted on.
Answer:
SEC Rule 10b-5 prohibits use of fraudulent or omission of material information during a sale of security. If an investor purchases a stock based on fraudulent or omissions, he may recover for damage when the stock loses value.
In this case, the investor purchased a stock in a company believing that the company's drug will be a success. However, the company had pointed out the drug may not work as well on humans, the stock later drop in value due to the drug's failure.
This is a disclaimer would tell the potential risk of investors on relying on the company's drug as an investment.
Answer:
Refer to the case Hocking v Dubois to answer question as below:
Facts to this case
• An investor was sold a rental pool arrangement.
• Under the arrangement the investor was allowed access to the property for two weeks a year.
• The property was also owned by around 50 other people in the arrangement.
• The investor later sued the seller for securities fraud.
Case Issue
The issue is whether the rental pool arrangement is a security. Note, if it is not a security the investor cannot sue for damages under security regulations.
Relevant Terms, Laws, and Cases
SEC Rule 10b-5 prohibits use of fraudulent or omission of material information during a sale of security.
Analysis and Conclusion
The court held for the investor. They argued that the arrangement was a security known as an investment contract:
• The investment contract is determined by the Howey test, 1) an investment of money with 2) a common enterprise 3) and expectation of profits due to efforts of third parties.
• The first two factors were met because money was invested and the arrangement contained a group of people with investment in the same property.
• The third factor the court argued was harder to show, but the investor did not live in the property and had little access to it. The investor also claims that he will sell his property for a profit.
Thus, the arrangement can be a security.