Corps II - Insider Trading - Rule 10b-5 and §16(b)

Question 1

Rule 10b-5, in general

Answer 1

1. Deceit or Fraud in connection with Sale of a Security;
2. Materiality - Reasonable Investor;
3. Scienter - Intentional or Knowing;
4. Standing - In Connection With or Fraud On Market;
5. Causation - Relied Upon; and
6. Damages - Liquidated;

DOFICSOS-MIR-SIK-SICFOM-CRUDL (Deceit or Fraud In Connection Sale of Security - Materiality Investor Reasonable - Scienter Intentional Knowing - Standing In Connection Fraud on Market Causation Relied Upon Damages Liquidated)

Question 2

10b-5 Opening Paragraph

Answer 2

It is unlawful for any person, directly or indirectly, by use of any means or instrumentality of interstate commerce or the mails, to employ any fraudulent or manipulative devices in connection with the purchase or sale of any securities.

Question 3

10b-5 Elements

Answer 3

1. Jurisdiction - IC or national exchange;
2. Omission/misstatement;
3. Material - reasonable investor;
4. Scienter - intent or reckless;
5. Standing - Anyone who bought or sold;
6. Reliance (for misrepresentation, not omission);
7. Privity - not req’d like CL;
8. Remedies.

Jeff Once Made Some Spicey Revolting Pork Rice

Question 4

10b-5 liability types

Answer 4

1. Primary - Substantial factor or Bright-line;
2. Control person - 1) actually exercised control; 2) power or ability to control, co-exist with respondeat superior;
3. Aider or abettor - creation, distribution, or publication.

P-SuB-CAPARS-ACDOP (Primary Substantial Bright Control Actually Power Ability Respondeat Superior AIDER Creation Distribution or Publication)

Question 5

Statute of limitations, derivative - 10b-5 and §16(b)

Answer 5

1. 10b-5 - 2 years from discovery, not to exceed 5;
2. §16(b) - 2 years, no tolling for failure to file, Derivative after 60 day Demand.

10-2-5-16-2-60Day

Question 6

Tippee liability

Answer 6

1. Breached duty by Improperly Disclosing;
2. Tippee liable under 10b-5 for Trading on Material Nonpublic Information;
3. improper if Tipper expects to receive personal benefit;
4. Tippee must have Reason to Know of Tipper’s breach

BID-TOMNI-BIRK (Breached Improperly Disclosing Trading on Material Nonpublic Information Benefit Improper Reason Known)

Question 7

Misappropriation theory

Answer 7

1. Non-insider trading on Material Nonpublic Information;
2. 10b5-(2), Duty of Trust and Confidence (list)

NITOMNI-DOTAC (Non Insider Trading on Material Nonpublic Information Duty of Trust and Confidence)

Question 8

§16(b)

Answer 8

1. Director, Officer, or 10% Shareholder are Strictly Liable;
2. Swing Trade 6 months;
3. Unfairness Presumed;
4. Mergers, Exchanges, Exercise, Not Conversions;
5. Ratify by Board;
6. Publicly traded or public Debt.

DOSSL-STUP-MEENC (Director Officer Shareholder Strictly Liable Swing Trade Unfairness Presumed Merger Exchange Exercise Not Conversion)

Question 9

10b-5 opening paragraph

Answer 9

DIMIIC-MEF-MICSP -Directly Indirectly Means Instrumentality Interstate Commerce Mails Employ Fraudulent Manipulative In Connection Sale Purchase

It is unlawful for any person, directly or indirectly, by use of any means or instrumentality of interstate commerce or the mails, to employ any fraudulent or manipulative devices in connection with the purchase or sale of any securities.