Violation of Sec Rule 10-B-5 of the Federal Statue Essay

Words: 1486
Pages: 6


To: Reader
From: Date: July 11, 2014
Re: Violation of SEC Rule 10-b-5 of the Federal statue

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 a share. After the announcement, the share price skyrockets to $50 per share.
a) If the shareholders bring a derivative action against Aquaman, what federal
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Aquaman committed “insider trading” under Section 10(b) of the Securities Exchange Act of 1934, because he omitted valuable material from the shareholders. Aquaman is liable under this rule, as his action qualifies as a deceptive device.

Thus, Aquaman is guilty of violating under the federal rule of “insider trading” for withholding valuable material information and breach of his fiduciary duty, under 17 C.F.R. § 240.10b, which prohibit any person, directly or indirectly, from committing fraud in connection with the sale or purchase of securities.

Second Issue: What recourse can be taken by the shareholders if Aquaman is found guilty of insider trading.
The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 (Remedies Act), Sec. 101 “Authority of a court to impose money penalties and to prohibit persons from serving as officers,” gave the SEC the right to impose civil money penalties on corporate issuers (of securities) if they fail to comply with SEC rules and regulations.
Under the SEC Remedies Act, it states that the SEC may enter disgorgement orders in its administrative