Answer:
Refer to the case Herman MacLean v Huddleston to answer question as below:
Facts to this case
• An accounting firm made misstatements on financial statements that were used by investors to purchase stocks in a firm.
• The firm failed.
• Investors filed a claim against the accounting firm.
Case Issue
The issue is whether the accounting firm is liable for the investors.
Securities Act 1934 - concerns with sale of securities in the secondary market, e.g. stocks that are traded in stock exchanges.
Analysis and Conclusion
The court held for the investors. They have a cause of action against the accounting firm because the law provides that people having a direct role with violation of the section 10b securities act may be sued. The accounting firm had a role in the investment violation because of the misstatements they made.
Answer:
Rule 10b of Securities Act of 1934 concerns the omission of or fraudulent representation material fact during a sale of security. In this case, the investor purchased stocks in a company because the company gave favorable review of their drilling operation which turned out to be false later on. By this fact alone the company would be in violation of Rule 10b.
However, the company made disclaimers that these favorable reviews were only forward looking statements and actual results may differ; this disclaimer fell under the safe harbor provision for rule 10b which allows company to disclaim their predicted business successes by informing investors of potential risk.
Thus, the investor may not have a claim on the company due to rule 10b because of the disclaimer.
Answer:
Refer to the case Securities Exchange Commission (SEC) v Dorozhko to answer question as below.
Facts to this case
• A hacker hacked into a company's secured financial records.
• Hacker used the information for advantage in the company's securities.
Case Issue
The issue is whether the hacker's action is considered insider trading.
Relevant Terms, Laws, and Cases
Insider Trading - happens when an insider, person working with the company, uses information of his company to achieve an unfair advantage in an investment.
Misappropriation Theory of Insider Trading - is stealing non-public information from an employer to gain an advantage in any stock.
Analysis and Conclusion
The court held that there was no insider trading. They argued that:
• For insider trading to be established the trader must have had a fiduciary duty to the company.
• The hacker was not an employee of the company and owed no fiduciary duty to them.
Thus, the actions were not considered insider trading.
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