Professor Starcher

 Every business corporation is governed by a board of directors. A director occupies a position of responsibility unlike that of other corporate personnel. Directors normally serve for terms of one year. Officers and executive employees are hired by the board of directors. At a minimum, most corporations have a president, one or more vice presidents, a secretary, and a treasurer. Directors and officers are deemed to be fiduciaries of the corporation and its shareholders is one of trust and confidence.  Chapters: 26, 27

 Grand Metropolitan PLC (Grand Met) planned to make a tender offer as part of an attempted takeover of the Pillsbury Co. Grand Met hired Robert Falbo, an independent contractor, to complete electrical work as part of security renovations to its offices to prevent leaks of information concerning the planned tender offer. Falbo was given a master key to access the executive offices. When an executive secretary told Falbo that a takeover was brewing, he used his key to access the offices and eavesdropped on conversations; in this way, he learned that Pillsbury was the target. Falbo bought thousands of shares of Pillsbury stock for less than $40 per share. Within two months, Grand Met made an offer for all outstanding Pillsbury stock at $60.00 per share and ultimately paid up to $66 per share. Falbo made a profit of more than $165,000. The Securities and Exchange Commission (SEC) filed a suit in a federal district court against Falbo and others for alleged violations of, among other things, SEC Rule 10b-5. [SEC v Falbo, 14 F.Supp.2d 508 (S.D.N.Y. 1998)]  Under what theory might Falbo be liable? Do the circumstances of this case meet all of the requirements for liability under that theory? Explain. P 572 Remember to justify your answer using information from your reading an be sure to: 1. Examine the SEC Rule 10b Discuss whether or not Falbo was liable under the misappropriation theory. p 575

 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. Emerson went on a weekend fishing trip with his uncle, Ernest Wallace. Emerson mentioned to Wallace that he had been putting in a lot of extra hours at the office planning a takeover of Dakota Gasworks. On returning from the fishing t rip, Wallace met with a broker from Chambers Investments and purchased $20,000 of Reliant stock. Three weeks later, Reliant made a tender offer to Dakota Gasworks stockholders and purchased 57% of Dakota Gasworks stock. Over the next two weeks, the price of Reliant stock rose 72%  before leveling out. Wallace then so ld his Reliant stock for a gross profit of $14,400. Using the information presented in our reading material, 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? Pg 572  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 of 2002, who would be required to certify the accuracy of financial  statements filed with the SEC?  In responding to the questions be sure to:   Analyze the rules that determine when issuing corporations must file a registration  statement with the Securities Exchange Commission.   Discuss the SEC rule 10b-5 and whether or not it applies to the above case. P 572   Discuss insider trading, tipping, and misappropriation. P 575   Examine the Sarbanes Oxley Act of p 579

 Langley Brothers, Inc., a corporation incorporated and doing business in Kansas, decides to sell no par  common stock worth $1 million to the public. The stock will be sold only within the state of Kansas.  Joseph Langley, the chairman of the board, says the offering need not be registered with the Securities  and Exchange Commission. His brother, Harry, disagrees. Who is right? Explain.  In responding to the question be sure to:   Discuss the exempt securities pursuant to the Securities and Exchange Act.   Determine whether or not Langley Brothers would be subject to registration requirements.