HOME

Business Organizations



Previous Outline

Next Outline

 

 

Outline

Misappropriation liability

  • Rule 14e-3
    • material tender offer info
    • knows (or reason to know)
      •  nonpublic
      •  from bidder or target
  • Rule 10b-5
    • fiduciary breach to holder of information
    • fraud “in connection” with securities trading
    • rationale: 
      • protection of proprietary info 
      • preservation of market integrity
  • Rule 10b-5-2
    • relationship of "trust or confidence"
      • contract
      • long-standing relationship
      • family relationship
    • role of SEC in interpreting insider trading rules

Daily Thoughts

College application of the day

I am a dynamic figure, often seen scaling walls and crushing ice.  I have been known to remodel train stations on my lunch breaks, making them more efficient in the area of heat retention.  I translate ethnic slurs for Cuban refugees, I write award-winning operas, I manage time efficiently.

Occasionally, I tread water for three days in a row.

I woo women with my sensuous and godlike trombone playing, I can pilot bicycles up severe inclines with unflagging speed, and I cook Thirty-Minute Brownies in twenty minutes.  I am an expert in stucco, a veteran in love, and an outlaw in Peru.

Using only a hoe and a large glass of water, I once single-handedly defended a small village in the Amazon Basin from a horde of ferocious army ants.  I play bluegrass cello, I was scouted by the Mets, I am the subject of numerous documentaries.  When I'm bored, I build large suspension bridges in my yard.  I enjoy urban hang gliding.  On Wednesdays, after school, I repair electrical appliances free of charge.

I am an abstract artist, a concrete analyst, and a ruthless bookie.  Critics worldwide swoon over my original line of corduroy evening wear.

I don't perspire.  I am a private citizen, yet I receive fan mail.  I have been caller number nine and have won the weekend passes.  Last summer I toured New Jersey with a traveling centrifugal-force demonstration.  I bat .400.

My deft floral arrangements have earned me fame in international botany circles.  Children trust me.

I can hurl tennis rackets at small moving objects with deadly accuracy.

I once read Paradise Lost, Moby Dick, and David Copperfield in one day and still had time to refurbish an entire dining room that evening.  I know the exact location of every food item in the supermarket.  I have performed several covert operations with the CIA.  I sleep once a week; when I do sleep, I sleep in a chair.  While on vacation in Canada, I successfully negotiated with a group of terrorists who had seized a small bakery.  The laws of physics do not apply to me.

I balance, I weave, I dodge, I frolic, and my bills are all paid.  On weekends, to let off steam, I participate in full-contact origami.  Years ago I discovered the meaning of life but forgot to write it down.  I have made extraordinary four course meals using only a mouli and a toaster oven.

I breed prizewinning clams.  I have won bullfights in San Juan, cliff-diving competitions in Sri Lanka, and spelling bees at the Kremlin.

I have played Hamlet, I have performed open-heart surgery, and I have spoken with Elvis.

But I have not yet gone to college.

Problems

You are a partner in the venerable law firm Dewey & Howe.  One of your clients, General Metro, a mulitnational conglomerate is planning a takeover of Happy Pantries, a large publicly-traded U.S. food company. General Metro expects to launch a proxy fight and then merge with Happy Pantries in a stock-for-stock deal.  It does not want to undertake a tender offer.  Prior to announcing its plans, General Metro has been buying Happy Pantries stock at prevailing market prices.  It hopes to gain a significant toehold to increase its chances in the proxy fight and lower the costs of the merger.  In addition, General Metro has encouraged its investment banker to buy Happy Pantries stock to increase the number of “friendly” shareholders.  So you buy!  The proxy fight is close, but a success for General Metro.  You make a killing when you sell your holdings after the merger.  The SEC brings a disgorgement action claiming that you violated Rule 10b-5.

Party A (SEC) Make the argument the SEC is likely to make that you violated Rule 10b-5.  Explain how the SEC might discount that General Metro wanted “friendly” shareholders.

Party B (you) Argue you have not violated Rule 10b-5.  Explain the relevance that General Metro wanted “friendly” shareholders.

Readings