ASSIGNMENT 4 BUSINESS LAW AND BANKRUPTCY Facts Aquaman is president of a marine research company called "Underwater Leagues, Inc." On April 1, the research director of Underwater Leagues tells Aquaman that they've come up with "Oxygum," a means of breathing underwater by chewing a special kind of gum. Aquaman knows a great product when he hears it. He delays announcing the invention to the public so that he can buy all the stock he can get his hands on. He buys 50,000 shares of Underwater Leagues, at $10 apiece. After the announcement, the share price skyrockets to $50 per share. Issue If the shareholders bring a derivative action against Aquaman, what federal law should they accuse Aquaman of having violated? Did he violate this statute?
…show more content…
Delendo Corp., 136 F.2d 231 (2d Cir. N.Y. 1943), the stockholders brought an action against defendant pursuant to 15 U.S.C.S. § 78p(b), after it was found that the corporate officers realized profits from various security trades make within a sixmonth period. Plaintiff’s won and defendants appealed. The court affirmed as plaintiffs had met the objective burden of proof and profits realized were property calculated. The court also allowed the recovery of attorney fees from the corporation because the action was brought on their behalf.
According to Gollust v. Mendell, 501 U.S. 115 (U.S. 1991) the “strict liability” of 16(b) requires insiders to disgorge these "short-swing" profits "even if they did not trade on inside information or intend to profit on the basis of such information." Also, in interpreting 15 U.S.C. 78j(b), the Securities and Exchange Commission and the Federal courts have extended the common-law definition of fraud to include not only affirmative misrepresentations, relied upon by the purchaser or seller, but also a failure to disclose material information which might have affected the transaction. Securities & Exch. Comm. v. Texas Gulf Sulphur Co., 401 F. 2d 833 (2d Cir. N.Y. 1968). In Diamond v. Oreamuno, 24 N.Y.2d 494 (N.Y. Ct. of App. 1969), a shareholder derivative action was filed against the chairman of the board and it’s president for using inside information, acquired by the positions, in order to gain large personal profits for