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43 Cards in this Set
- Front
- Back
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Misrepresentations in Offering documents/failing to file SI state
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Imposes liability on the issuer in favor of purchaser for consideration paid less any income received
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Disclosure to investors of material facts
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Can force issuer and underwriters to abandon the offering
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Failure to file SI
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Abandon offering
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Failure to register before trading
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SEC can deregister a company, require amended SI form with corrected information
Cancel or terminate offering Impose fines on company or principal persons (3x or 1 million) |
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MANAGEMENT AND DUTIES
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Director is PERSONALLY LIABLE for direct and proximate losses suffered by corporation and extends to all directors who have knowledge of, participate, acquiesce or ratify the action
A director is liable if it is an illegal action, despite good faith or negligent (should know & don’t know) Recklessness- Deemed not to have exercised reasonable business judgement if you should have acted but didn’t |
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VIOLATIONS OF FD
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Fired if officer
Removal from board Turn over profits or constructive trust on assets |
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SELF DEALING
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Profits from use of inside information must be accounted to the corporation
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BUSINESS OPPORTUNITY
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Recover profits or force director to convey property to the corporation at cost
Corporation gets a constructive trust if director has converted property to cash (profits-cost), or Damages if the corporation is injured Misappropriation of soft assets (good will/confidential information) |
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DIRECTORS COMPETITION WITH COMPANY
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Breach of contract
Misappropriation of trade secret Tortuous interference with contract Breach of duty |
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MISSTATEMENT OF FINANCIALS IN REPORTING DOCUMENTS
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Breach of FD
Breach of Sarbanes Oxley |
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PROXY REGULATION- failure to comply with rules can result in:
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Excluding the proposal or request no action letter
Enjoin the meeting File corrected statement Invalidate vote Request for proxy list- response w/in 5 days and include list of no. holders, type and class of stock, and cost of mailing. (if hostile action) or board refuses to include then can sue for the list and send out information to shareholders. Must front the cost but if successful, will control the board and can seek reimbursement. If secondary market can sell shares |
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PROXY FRAUD 14a9
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Sue to compel correction
Opinions NOT actionable under state law Can be direct or derivative Remedies include: injunction, rescind transaction, attorney fees Federal action for proxy fraud- or if cant bring federal action bring state law for fraud (requires intent and damages) No federal action in state court |
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FRAUD IN ELECTION OF BOARD
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Enjoin
New election Expulsion |
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FRAUD IN SALE OF ASSETS, MERGERS, SHARES
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Rescind
Enjoin |
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FRAUD IN COMPENSATION PLAN
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Rescind
Terminate |
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SHARES EXCHANGED/VOTE
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Appraisal remedy
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SHAREHOLDER PROPOSALS
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Exclude proposals that include false or misleading information.
Include proposals if SEC believes should be includable-Denies No Action Letter. |
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10(b) VIOLATION
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can only be brought in federal court
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SEC ACTION AGAINST CORPORATION: OBLIGATION TO CORRECT MISSTATEMENTS
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Liable to SEC for damages
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10B5 DIRECT ACTION
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By purchaser or sell of securities who loses money based on misinformation
Person who is defrauded can bring action as a result of misrepresentation (direct action- private) |
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DERIVATIVE ACTION
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Breach of fiduciary duty for failing to correct misinformation. (duty of care) if person is also receiving a benefit (you have self dealing)
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16(b)
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Disgorge any profits
To determine the damages, offset the highest sell with the lowest purchase. Losses need not be offset. Doesn’t apply unless there are gains |
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INSIDER TRADING
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Civil penalties under 10(b)
Private direct action for damages Derivative action for breach of damages Removed from the board Section 21 provides SEC can impose penalties 3x profit or loss avoided or vs controlling persons $1,000,0000 or 3 times profit. Duty to disclose or correct public statements |
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BUT…INSIDER TRADING
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No benefit to tipper, would still result in breach of fiduciary duty for disclosing information
No benefit to tippee, misappropriation for tippee if there is a relationship between tippee and tipper |
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Rescind Contract
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(stock not resold)
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Recession
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(stock resold)
Buyer’s profit (price bought stock – price sold stock) |
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Out of pocket
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Difference between bought or sold stock for and what stock is worth
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Conversion
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Difference between the price purchased and the market price at which you could sale or repurchase once fraud is revealed
Have an obligation to mitigate (once aware of misrepresentation) have to sell the stock or do something- cant allow damages to increase [difference between bought and market price if known at time] |
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No Punitive Damages
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May be available in state statutes [SEC imposes fines, will usually deter people by charging $1 million dollars or 3 times the value
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Right of Contribution
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There is an implied right of contribution among defendants found liable for violation and imposed same damages (pay in proportion to level of participation in scheme- jointly and severely liable if all a party to it)
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Criminal Action
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Insider trading if aware of legal consequences
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ALWAYS
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violation to make misrepresentations of material fact
obligaterd to correct misinformation |
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10B5
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intentional
use of interstate commerce to defraud through material misrepresentations/material fact in the purchase and sale of securtiies in a close or public corporation |
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Themesong
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disinterest
full and complete disclosure reasonabe investigation of all material facts if interested, appoint committee or take it to the SH |
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PROXY FRAUD
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material misrepreseantions/omissions of a material fact
materiality establishes reliance losss causation no intent required |
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BREACH OF DUTY OF CARE
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Caremark
know or should know violations occuring took no steps to prevent or remedy failure was proximate result of losses |
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SEC 1933 FALSE STATEMENTS IN IPO
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material misrepresentations/material fact
Material (reliance) = breach of fd maybe fraud |
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STATE FRAUD
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actual misrepresentation of fact
mgmt knew of falsity of representations shareholders read and relied on them acutal damages because of reliance |
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TIPPER/TIPPEE LIABILITY
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Indsider tells someone else...
Tipper: Breach of FD Personal benefit Tippee: Know of duty and breach of duty Trades on information |
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INSIDER TRADING
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material misrepresentations/ omission of material fact (basic)
Purchase or sale of securities (blue chip) Intent to decieve (ernst) (knows that it is misinformation) Breach of Duty to Corproation |
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PROXY FRAUD
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SEC 14a9
material misrepresentations/material fact materiality establishes reliance loss causation intent (not required) |
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OUTSIDER TRADING- MISAPPROPRIATION
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Breach of duty to source (special relationship)
non-public information trade on information (breach to employer- not corporation) |
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16b
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10% benefical SH, director, officer of public corporation
purchase and sells shares 6m period strict liability- assume trading on information |
