QUESTIONS CORPORATIONS
5
CA Bar 2009: Corporations
C) Tippees: those who receive inside info and trade on it w/ the
knowledge that the info was disclosed in breach of the tipper’s fid
duty
What are the requirements of c. Affirmative act: in connection w/ the actual purpose or sale of securities not
16(b)? refraining from buying/selling
What happens when 16(b) 3. Private action for damages, investors must also prove:
applies? a. Reliance on the fraud or bought at a price infected by the fraud (fraud on the
market)
b. Loss causation: fraud not only induced the purchase or sale but also caused
their economic losses
B. Section 16(b) of the ’34 Act: Short Swing Trading Profits
1. Only applies to:
a. Big corps that report:
1) Listed on a national exchange
2) At least 500 shareholders and 10M in assets
b. Big shot D—officer/director ore more than 10% shareholder
c. Type of txn: no buying or selling stock w/in a single 6 month period (short
swing trading)
2. When 16(b) applies:
a. All profits from such short swing trading are recoverable by the corporation,
b. If w/in 6 months, before or after any sale, there was a purchase at a lower
price than the sale price, there is a profit.
C. SOX
1. Applies to reporting companies
2. CEO and CFO must certify that based on the officer’s knowledge, reports filed w/
the SEC:
a. Do not contain material misrepresentations or omissions, and
b. Fairly presents the financial position of the company
3. Willfully certifying a false report could bring $5M fine and 20 year jail sentence
4. If false reports have to be restated, the corp (directly or derivatively) may recover
Officer’s profits made from trading the company’s securities w/in the 12 months
after the false reports were filed and may receive incentive based comp received in
that period.