Discussion and Debate – Insider Trading

Discussion and Debate – Insider Trading

Question 1: Would registration with the SEC be required for Dakota Gasworks securities? Why or why not?

No, the registration of Dakota gas works on the SEC would not be required because Reliant Electric Company is already registered with the SEC. The acquired company no longer exists after the acquisition, but it is infused into the acquiring company. In other words, Dakota Gas Works Company would be part of Reliant Electric Company. There is no way Dakota Gas Works Company would be answerable to the SEC since it is part of Reliant Electric’s portfolio.[1] Anything related to its services would be answered by Reliant Electric Company. Public companies such as Reliant Electric company are required to adhere to the SEC regulations, and failure to adhere to the rules amounts to fines. As it acquires Dakota Gas Works, Reliant Electric must report to the SEC about the acquisition and adhere to another requirement when conducting such a move.

Question 2: Did Emerson violate Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5? Why or why not?

No, Emerson did not violate Section 10(b) of the SEC and Rule 10b-5. Section 10(b) states that it is unlawful to use or employ manipulative or deceptive devices to contravention such rules and regulations as prescribed by the SEC 78J (b). According to Sec 78j (b), securities include;’ bonds, stocks, debentures, and other instruments.[2] In the acquisition of Dakota Gas Works Company, Emerson did not use any deceptive devices that area in contravention to Section 10(b). Moreover, the Act of Emerson informing his uncle Wallace that his company was finalizing plans to acquire Dakota Gas Works Company was not in any way in violation of Sec 10(b).[3]

Moreover, Emerson does not violate Rule 10b-5. Rule 10(b)-5 states that the purchase or the sale of a security of an issuer on the basis of the material’s non-public information about the security is in breach of the duty of trust or confidence that is owed directly to the issuer of that security.[4] Emerson did not violate this rule because he was not involved in any business as an insider. Emerson did not encourage his uncle to buy shares in his company, but they were chatting casually. Wallace took advantage of the revelation that the company was in the acquisition process and decided to buy shares. In a few weeks, he made a huge profit.

Question 3: What theory or theories might a court use to hold Wallace liable for insider trading?

The court would use rule 10b-5 of the Exchange Act. This Act prohibits purchasing or selling securities on the material non-public information.[5] Thus, Wallace would be held liable for violating this rule since his decision to buy shares from Reliant Electric Company was based on the information Emerson gave him.[6] The information that Reliant was planning to acquire Dakota Gasworks was not in the public domain; the company had not announced it publicly, but when Wallace heard from Emerson, he seized the opportunity and bought shares in the company, knowing well that he was going to reap a lot of profit from it. Thus, Wallace was liable for insider trading because he used information from an insider, Emerson.

Question 4: Under the Sarbanes-Oxley Act, who would be required to certify the accuracy of the financial statements Reliant filed with the SEC

Under the Sarbanes-Oxley Act, the executive is the one who is required to certify the accuracy of the financial statements of the company.[7] The executive, including the CEO, the CFO, and other senior managers, must examine the financial statements to ensure that they are accurate before publishing them. If financial statements are found inaccurate, then all the executive members would be liable for not doing their duty.

Debate

Insider trading should not be legalized; this helps protect other investors from unfair practices by the insiders.[8] However, allowing or legalizing insider trading means would give an advantage to the insiders where they would take advantage of their position and make investment decisions based on the information available to them while other external investors

Bibliography

Cornell.Edu. 2021. Securities Exchange Act of 1934. https://www.law.cornell.edu/wex/securities_exchange_act_of_1934

Foerster, M. 2020. Answers To Common Questions About Rule 10b5-1 Plans. Retrieved from https://www.jdsupra.com/legalnews/answers-to-common-questions-about-rule-47941

Miller, R. 2017. Business law today. 11th Ed. Cengage Learning

[i][ii][iii][iv][v]

[1] Cornell.Edu. 2021. Securities Exchange Act of 1934. https://www.law.cornell.edu/wex/securities_exchange_act_of_1934

[2] Cornell.Edu. 2021.

[3] Miller, R. 2017. Business law today. 11th Ed. Cengage Learning

[4] Foerster, M. 2020. Answers to Common Questions About Rule 10b5-1 Plans. Retrieved from https://www.jdsupra.com/legalnews/answers-to-common-questions-about-rule-47941

[5] Miller, R. 2017. Business law today. 11th Ed. Cengage Learning

[6] Foerster, M. 2020.

[7] Miller, R. 2017.

[8] Miller, R. 2017.

[i]   Cornell.Edu. 2021. Securities Exchange Act of 1934

[ii] Miller, R. 2017. Business law today. 11th Ed. Cengage Learning

[iii] Foerster, M. 2020. Answers to Common Questions About Rule 10b5-1 Plans. Retrieved from https://www.jdsupra.com/legalnews/answers-to-common-questions-about-rule-47941

[iv]   Miller, R. 2017

[v] Foerster, M. 2020.

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Discussion and Debate – Insider Trading

Debate This: Insider Trading
From Business Law II
Chapter 36, p. 865

Dale Emerson served as the chief financial officer for Reliant Electric Company, a distributor of electricity serving portions of Montana and North Dakota. Reliant was in the final stages of planning a takeover of Dakota Gasworks, Inc., a natural gas distributor that operated solely within North Dakota. On a weekend fishing trip with his uncle, Ernest Wallace, Emerson mentioned that he had been putting in a lot of extra hours at the office planning a takeover of Dakota Gasworks. When he returned from the fishing trip, Wallace purchased $20,000 worth of Reliant stock. Three weeks later, Reliant made a tender offer to Dakota Gasworks stockholders and purchased 57 percent of Dakota Gasworks stock. Over the next two weeks, the price of Reliant stock rose 72 percent before leveling out. Wallace sold his Reliant stock for a gross profit of $14,400. Using the information presented in the chapter, answer the following questions.

1. Would registration with the SEC be required for Dakota Gasworks securities? Why or why not?

2. Did Emerson violate Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5? Why or why not?

3. What theory or theories might a court use to hold Wallace liable for insider trading?

4. Under the Sarbanes-Oxley Act, who would be required to certify the accuracy of the financial statements Reliant filed with the SEC

Debate This:
Insider trading should be legalized