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Violation of Sec Rule 10-B-5 of the Federal Statue

In: Other Topics

Submitted By caroline1
Words 1473
Pages 6

To: Reader
From: Date: July 11, 2014
Re: Violation of SEC Rule 10-b-5 of the Federal statue

Aquaman is president of a marine research company called "Underwater Leagues, Inc." On April 1, the research director of Underwater Leagues tells Aquaman that they've come up with "Oxygum," a means of breathing underwater by chewing a special kind of gum. Aquaman knows a great product when he hears it.
He delays announcing the invention to the public so that he can buy all the stock he can get his hands on. He buys 50,000 shares of Underwater Leagues, at $10 a share. After the announcement, the share price skyrockets to $50 per share.
a) If the shareholders bring a derivative action against Aquaman, what federal law should they accuse Aquaman of having violated (i.e., which federal statute)?

b) Did Aquaman actually violate that statute? Explain.

c) If Aquaman were found to have violated that statute, what remedy would the shareholders be able to seek (i.e., how much money would Aquaman be liable for.

Issue First issue:
(1) Pursuant to what federal statute would the shareholders claim Aquaman violated, and was he truly in violation of that statute?
Section 10(b) of the Securities Exchange Act, Rule 10b-5, 17 C.F.R. § 240.10b, prohibit any person, directly or indirectly, from committing fraud in connection with the sale or purchase of securities. 17 CFR § 240.10b-5 (2014) is entitled “Employment of Manipulative and Deceptive Practices." It basically states “it is unlawful for any individual or entity, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the...

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