Reference no: EM133192327

Case: Dale Emerson served as the chief financial officer for Reliant Electric Company, a distributor of electricity serving portions of Montana and North Dakota. Reliant was in the final stages of planning a takeover of Dakota Gasworks, Inc., a natural gas distributor that operated solely within North Dakota. On a weekend fishing trip with his uncle, Ernest Wallace, Emerson mentioned that he had been putting in a lot of extra hours at the office planning a takeover of Dakota Gasworks. When he returned from the fishing trip, Wallace purchased $20,000 worth of Reliant stock. Three weeks later, Reliant made a tender offer to Dakota Gasworks stockholders and purchased 57 percent of Dakota Gasworks stock. Over the next two weeks, the price of Reliant stock rose 72 percent before leveling out. Wallace sold his Reliant stock for a gross profit of $14,400. Using the information presented in the chapter, answer the following questions.

Question 1: Would registration with the SEC be required for Dakota Gasworks securities? Why or why not?

Question 2: Did Emerson violate Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5? Why or why not?

Question 3: What theory or theories might a court use to hold Wallace liable for insider trading?

Question 4: Under the Sarbanes-Oxley Act, who would be required to certify the accuracy of the financial statements Reliant filed with the SEC

Part B: write an opinion about the following post

It is against the law to engage in insider trading hence should be avoided as shown by many interpretations of the law such as the Securities Exchange Act of 1933. Before issuing or trading stocks, a company is required to first register securities with the Securities and Exchange Commission (SEC), unless those securities are exempt from the registration requirements under the Securities Act of 1933. The vast majority of excluded activities have typically comprised offers and purchases to permitted stakeholders, such as banks, whose income or net worth exceeds a certain level. This provides some individuals with an unjustified advantage in the market at the expense of other shareholders. Therefore, insider trading should be illegalized so that all traders can have a fair ground for conducting their activities.

Another argument against insider trading is that If only a limited number of individuals trade based on information that isn't publicly available, then the general public might get the impression that markets aren't operating fairly. It's possible that this will cause people to lose faith in the monetary system, and individual investors won't want to put their money into markets that are manipulated. Besides, those on the inside who know something that the vast majority does not are able to benefit from gains and prevent losses. That eliminates the danger that is taken on by traders whenever they put their money into something for which they do not have complete information. As a result, it will become increasingly difficult for companies to obtain capital as an increasing number of individuals lose trust in the markets. At some point in time, it's also possible that there won't be very many outsiders remaining.

Furthermore, insider trading is a violation of section 10 of the Criminal Code (b). The employment of any deceptive technique in breach of the security exchange legislation and requirements is prohibited under this clause. Almost all incidents involving the securities trading, whether on established or even over marketplaces and activities, are covered under this section. Only a few people profit from insider trading, while other stakeholders who have no direct touch with the insiders above the business lose money. Insider trading is unlawful since it involves providing knowledge that is not available to the general public.