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 sold 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?
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.
• Discuss insider trading, tipping, and misappropriation.
• Examine the Sarbanes Oxley Act of 2002.
Asking the same questions
Asking the same questions. I didn't see the answer and well...I am curious on how this scenario would work.
Does anyone have the answer to these questions,Please?????
To answer these questions, let's break them down one by one:
1. Would registration with the SEC be required for Dakota Gasworks securities? Why or why not?
To determine if registration with the Securities Exchange Commission (SEC) is required, we need to consider the rules that govern when corporations must file a registration statement with the SEC. Under the Securities Act of 1933, companies are generally required to register their securities with the SEC before offering or selling them to the public. However, there are exemptions from this requirement. For example, if Dakota Gasworks is a private company solely operating within North Dakota and does not plan to offer its securities to the public, it may qualify for an exemption from registration.
2. Did Emerson violate Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5? Why or why not?
Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 prohibit fraudulent activities in connection with the purchase or sale of securities. These rules prohibit insider trading, which involves trading securities based on material non-public information. In this case, since Emerson mentioned the planned takeover of Dakota Gasworks to his uncle, the question arises whether Emerson breached his fiduciary duty by disclosing inside information. If Emerson traded on this information himself or provided it to others, he could be found to have violated Section 10(b) and Rule 10b-5.
3. What theory or theories might a court use to hold Wallace liable for insider trading?
To determine the liability of Wallace for insider trading, the court might consider the theories of "tipping" and "misappropriation." Tipping involves a person who possesses inside information providing it to someone else who then trades based on that information. If Emerson improperly disclosed inside information to Wallace and Wallace subsequently traded on that information, Wallace could be held liable for insider trading under the tipping theory. Additionally, the court might examine the theory of misappropriation, which involves using confidential information for personal gain without permission. If Wallace knowingly traded on inside information obtained from Emerson, he could be held liable under this theory as well.
4. Under the Sarbanes-Oxley Act of 2002, who would be required to certify the accuracy of financial statements filed with the SEC?
The Sarbanes-Oxley Act of 2002 established various corporate governance and accounting regulations. One of its provisions requires the certification of financial statements filed with the SEC. Under this act, the CEO (Chief Executive Officer) and CFO (Chief Financial Officer) of a company are required to certify the accuracy and completeness of financial statements. Therefore, in this case, Dale Emerson, as the CFO of Reliant Electric Company, would be required to certify the accuracy of the financial statements filed with the SEC.
In summary, to answer these questions:
1. Registration with the SEC may not be required for Dakota Gasworks securities if the company qualifies for an exemption from registration.
2. Emerson may have violated Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 if he disclosed inside information and traded on it.
3. Wallace could potentially be held liable for insider trading under the theories of tipping and misappropriation.
4. Under the Sarbanes-Oxley Act of 2002, the CEO and CFO of a company are required to certify the accuracy of financial statements filed with the SEC.