Unit 10 Discussion

Instructions

Unit 10 Discussion Insider TradingCARDWARE Inc. plans to take over First Class Purses & Accessories (FCPA) in an effort to coordinate elegant CARDWARE professional attire with items from FCPA that will complement CARDWAREs fashion designs. Darla, owner of Darlas Dummies, a mannequin manufacturer whom CARDWARE had used on numerous occasions happened to be delivering mannequins to CARDWAREs principal place of business in Silkadonia. As she was bringing the last of the dummies down the hall to the room where the dummies are dressed, she paused to listen to a conversation coming from one of the open doors of the hallway she was using. Realizing that a profit could be made from FCPAs stock, Darla called her broker and indicated that she wanted to purchase 50 % of the outstanding stock that was available for FCPA. Darla bought 2,000 shares of stock at $30 a share.CARDWARE offered $50 a share and ultimately ended up paying $65 per share for FCPA stock. Darla was no dummy, as she made a $70,000 profit on her stock purchase.The Securities and Exchange Commission (SEC) filed a suit in a federal district court against Darla and others for alleged violations of, among other things, SEC Rule 10b-5. [SEC v. Falbo 14 F.Supp.2d 508 (S.D.N.Y. 1998)]Discuss the following, justifying your response using information from your Reading1. Under what theory might Darla be liable?2. Do the circumstances of this case meet all of the requirements for liability under that theory? Explain.3. Examine the SEC Rule 10b-5.4. Discuss whether or not Darla was liable under the misappropriation theory.Respond in at least 150 words. Don't forget to cite and reference sources and please use relevant sources. Make sure writing is clear and easy to read.

Answer

Question 1Darla may be liable under the misappropriation theory of insider trading under Rule 10b-5. She overheard a conversation about FCPA stocks at the CARDWARE premises and went ahead to purchase the stocks based on the information. Under rule 10b-5, trading of securities under advance or inside information is considered fraud (Kumar, 2019). Darla gained an advantage through eavesdropping; thus, she should face the law for such conduct. Employees who obtain information wrongfully are liable to misappropriating since such acts violate the insider trading rule.Question 2Under misappropriation theory, the requirement for liability is using a company's material, non-public information to trade its securities, and it applies to both insiders and outsiders (Kumar, 2019). The theory also has...
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