Business Law & Bankruptcy
Assignment #4
Aquaman is president of a marine research company called Underwater Leagues, Inc. When his company conceived a dramatic new invention, he held off announcing the discovery until he bought 50,000 shares of Underwater Leagues at $10 per share. After the announcement, the share price skyrocketed to $50 per share.
The shareholders of Underwater Leagues, Inc. bring a derivative action suit against Aquaman claiming breach of fiduciary duty for violating 17 C.F.R. §240.10b-5 of the Securities and Exchange Commission Act of 1934 by purchasing stock in his company on the basis of information that was not available to the public. The shareholders seek remedy for their claim.
If a president of a corporation purchases stock in his company on the basis of non-public information that he deliberately withheld from the public, is he in violation of 17 C.F.R. §240.10b-5 of the Securities and Exchange Commission Act of 1934, and will he be held liable to shareholders for damages?
In Robert Kemp v. Universal American Financial Corporation, Fed. Sec. L. Rep. P94,147 (S.D.N.Y. 2007) an action is brought on behalf of those who purchased the securities of Universal American Financial Corporation (Universal) during the Class Period. Plaintiffs allege that Universal, a health and life insurance company, issued false and misleading statements regarding the financial performance of its senior health care segment, and allowed insiders to sell their privately held shares while the shares were artificially inflated. As a result, plaintiffs purchased inflated common stock that dropped in value after the company announced a decline in net income.
Richard A. Barasch, Universal’s Chairman, President, and CEO, sold 160,000 shares of his personally owned stock at an artificially inflated price for gross proceeds of $3.24 million, Robert A. Waegelein,