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Problems
One fall morning the CEOs of Mega Corp. and
Target Ltd. sit down for a power breakfast at a swank New York
hotel. The two agree that it "would be of mutual
interest" if the companies were to combine. The CEOs
talk to their boards, which authorize the exchange of proprietary
information and the hiring of investment bankers to advise the
companies on a possible deal. Target's publicly-traded stock
begins to act erratically. So a Wall Street Journal reporter
calls Target's CEO and asks her, "Can you confirm the rumors
that merger discussions are underway." The CEO says,
“I’m not in a position to confirm or deny any rumors.
Maybe you should do your homework.”
Party
A (shareholders) Argue that the CEO has violated Rule 10b-5.
What are the liability implications.
Party B (management) Argue the CEO did
not violate Rule 10b-5.
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