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Adair Case Business Law Essay Assignment
Adair Case Business Law Essay Assignment
Order ID 53563633773 Type Essay Writer Level Masters Style APA Sources/References 4 Perfect Number of Pages to Order 5-10 Pages Description/Paper Instructions
Adair Case Business Law Essay Assignment
I have attached the feedback
Facts of the Case
Adair Company deals in baby care products. One of the company’s R&D scientists, Walter, conducts tests on a synthetic material used to manufacture baby diapers to prevent rashes. He presents the preliminary findings to the CEO, Skylar, and expresses hope that advanced tests will confirm the preliminary findings.
Skylar sends a memo to the employees requesting secrecy as to the tests. Later, the board grants 10,000 shares of the restricted stock in the company to Skylar. At the time she accepts these shares, the board is unaware of the tests. However, the preliminary test results are confirmed later, but Walter decides to tell his friend, Hank, about the tests before the breakthrough is made public. Hank works in a different company dealing with similar baby products.
Therefore, Walter is sharing this information hoping that Hank would also share market-sensitive information about his company. Hank purchases shares of Adair’s stock, and he never shares any information with Walter about his company’s development or products.
Primary and Secondary Liability Under SEC Rule 10b.5
Rule 10b-5 by the Securities and Exchange Commission deals with insider trading. Under this rule, situations where an insider or a member of the executive uses nonpublic information for their own benefits are defined (Langevoort & Gulati, 2004). In this case, Adair Company is a profit-maximizing public company bound by this rule.
The rule states that “it shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
(a) to employ any device, scheme, or artifice to defraud, (b) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of securities. To determine if the individuals violated this rule, their liabilities in the company have to be defined.
The main issue is to determine whether Skylar, Walter, and Hank had primary or secondary liabilities in this company. Misstatements or fraudulent schemes define primary liability, while secondary liability is defined by aiding or abetting the scheme. In this case, Skylar can be accused of violating Rule 10b-5 by omission because she failed to disclose to the directors or investors that there were ongoing tests.
She went ahead and accepted $10,000 shares without disclosing the test information, meaning that she benefitted financially from this scheme. Therefore, Skylar had primary liability in this company because her action amounts to an omission of important information about the ongoing tests. She should have informed the board of directors about the tests before accepting the $10,000 shares. As a result, her action was a misstatement by omission, which defines primary liability.
FEEDBACK: Why was she liable? What relationship did she have that would make it so? Was the information material to the company? need case law – there is a 2 prong test that the court looked to .the issue of whether the “scienter” element of a Rule 10b-5 insider trading case can be satisfied?
Hank purchased Adair’s stock shares because he had prior information about the ongoing tests.
Therefore, Hank had a scheme to use insider information for financial gain without revealing the information to the concerned parties. Walter aided his fraudulent scheme because he revealed all the information to him. Therefore, both Hank and Walter violated the provisions of SEC Rule 10b-5.
However, they were not the initiators of the fraudulent scheme. This means Hank and Walter had secondary liability. Therefore, their actions also violated Rule 10b-5 because they used insider information for financial gain, which is a violation of Rule 10b-5.
In Lorenzo v. Securities and Exchange Commission, 578 US _ 2019, the Supreme Court ruled whether using a statement by someone who does not retain ultimate authority over the statement subjects the person to a fraudulent-scheme claim under SEC Rule 10b-5.
Lorenzo was a company director and had invested in a start-up company named W2E. W2E claimed to have an innovative technology, and the company’s valuation would be based on that technology.
However, the technology never materialized, forcing W2E to offer $15,000 in debentures to avoid financial ruin. This debt was secured only by the debtor’s earning power instead of tangible assets. Further, W2E failed to disclose the possible devaluation of its intangible assets when filing with SEC. After an audit, the company was devalued. On receiving the information, Lorenzo contacted two potential investors and informed them about the pending debenture offering by W2E instead of informing the investors that the company’s intangible assets had been devalued.
Lorenzo and his boss were charged for violating Rule 10b-5 and other SCE Act provisions.
The judges ruled that dissemination of false information with the intent to defraud violates Rule 10b-5. FEEDBACK: Does this relate to Hank and or Walter?
This can be applied here to show how Skylar misrepresented the company by hiding important information from the directors and investors. She benefited financially from this fraudulent scheme because she was offered $10,000 shares without the directors knowing that some ongoing tests could increase the company’s fortune.
Feedback: In the court of law, would Walter be held liable as he is a “tipper”. Was Walter a fiduciary who “tipped” ?what that mean, what would it entail, and what would happen? Even though he didn’t buy stock himself?
References
Langevoort, D. C., & Gulati, G. M. (2004). The muddled duty to disclose under Rule 10b-5. Vand. L. Rev., 57, 1639.
Lorenzo v. Securities and Exchange Commission, 578 US _ 2019, 17-1077. The United States Court of Appeal for the District of Colombia Circuit. https://www.oyez.org/cases/2018/17-1077
Adair Case Business Law Essay Assignment
RUBRIC
QUALITY OF RESPONSE NO RESPONSE POOR / UNSATISFACTORY SATISFACTORY GOOD EXCELLENT Content (worth a maximum of 50% of the total points) Zero points: Student failed to submit the final paper. 20 points out of 50: The essay illustrates poor understanding of the relevant material by failing to address or incorrectly addressing the relevant content; failing to identify or inaccurately explaining/defining key concepts/ideas; ignoring or incorrectly explaining key points/claims and the reasoning behind them; and/or incorrectly or inappropriately using terminology; and elements of the response are lacking. 30 points out of 50: The essay illustrates a rudimentary understanding of the relevant material by mentioning but not full explaining the relevant content; identifying some of the key concepts/ideas though failing to fully or accurately explain many of them; using terminology, though sometimes inaccurately or inappropriately; and/or incorporating some key claims/points but failing to explain the reasoning behind them or doing so inaccurately. Elements of the required response may also be lacking. 40 points out of 50: The essay illustrates solid understanding of the relevant material by correctly addressing most of the relevant content; identifying and explaining most of the key concepts/ideas; using correct terminology; explaining the reasoning behind most of the key points/claims; and/or where necessary or useful, substantiating some points with accurate examples. The answer is complete. 50 points: The essay illustrates exemplary understanding of the relevant material by thoroughly and correctly addressing the relevant content; identifying and explaining all of the key concepts/ideas; using correct terminology explaining the reasoning behind key points/claims and substantiating, as necessary/useful, points with several accurate and illuminating examples. No aspects of the required answer are missing. Use of Sources (worth a maximum of 20% of the total points). Zero points: Student failed to include citations and/or references. Or the student failed to submit a final paper. 5 out 20 points: Sources are seldom cited to support statements and/or format of citations are not recognizable as APA 6th Edition format. There are major errors in the formation of the references and citations. And/or there is a major reliance on highly questionable. The Student fails to provide an adequate synthesis of research collected for the paper. 10 out 20 points: References to scholarly sources are occasionally given; many statements seem unsubstantiated. Frequent errors in APA 6th Edition format, leaving the reader confused about the source of the information. There are significant errors of the formation in the references and citations. And/or there is a significant use of highly questionable sources. 15 out 20 points: Credible Scholarly sources are used effectively support claims and are, for the most part, clear and fairly represented. APA 6th Edition is used with only a few minor errors. There are minor errors in reference and/or citations. And/or there is some use of questionable sources. 20 points: Credible scholarly sources are used to give compelling evidence to support claims and are clearly and fairly represented. APA 6th Edition format is used accurately and consistently. The student uses above the maximum required references in the development of the assignment. Grammar (worth maximum of 20% of total points) Zero points: Student failed to submit the final paper. 5 points out of 20: The paper does not communicate ideas/points clearly due to inappropriate use of terminology and vague language; thoughts and sentences are disjointed or incomprehensible; organization lacking; and/or numerous grammatical, spelling/punctuation errors 10 points out 20: The paper is often unclear and difficult to follow due to some inappropriate terminology and/or vague language; ideas may be fragmented, wandering and/or repetitive; poor organization; and/or some grammatical, spelling, punctuation errors 15 points out of 20: The paper is mostly clear as a result of appropriate use of terminology and minimal vagueness; no tangents and no repetition; fairly good organization; almost perfect grammar, spelling, punctuation, and word usage. 20 points: The paper is clear, concise, and a pleasure to read as a result of appropriate and precise use of terminology; total coherence of thoughts and presentation and logical organization; and the essay is error free. Structure of the Paper (worth 10% of total points) Zero points: Student failed to submit the final paper. 3 points out of 10: Student needs to develop better formatting skills. The paper omits significant structural elements required for and APA 6th edition paper. Formatting of the paper has major flaws. The paper does not conform to APA 6th edition requirements whatsoever. 5 points out of 10: Appearance of final paper demonstrates the student’s limited ability to format the paper. There are significant errors in formatting and/or the total omission of major components of an APA 6th edition paper. They can include the omission of the cover page, abstract, and page numbers. Additionally the page has major formatting issues with spacing or paragraph formation. Font size might not conform to size requirements. The student also significantly writes too large or too short of and paper 7 points out of 10: Research paper presents an above-average use of formatting skills. The paper has slight errors within the paper. This can include small errors or omissions with the cover page, abstract, page number, and headers. There could be also slight formatting issues with the document spacing or the font Additionally the paper might slightly exceed or undershoot the specific number of required written pages for the assignment. 10 points: Student provides a high-caliber, formatted paper. This includes an APA 6th edition cover page, abstract, page number, headers and is double spaced in 12’ Times Roman Font. Additionally, the paper conforms to the specific number of required written pages and neither goes over or under the specified length of the paper.
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