BUS 624 w5d2
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East Carolina University *
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624
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Law
Date
Jan 9, 2024
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docx
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Uploaded by moniqueecma
Good evening, Everyone,
Judith Chen and Steve Chen may be deemed "insiders" under Rule 10(b)(5) of the Securities Act of 1934 based on the scenario given and the synopsis of
United States v. Newman. Being the CEO of New World Industries, Judith Chen would probably have access to significant, private information on the settlement she and her husband, Steve Chen, shared. As the person who acquired this information from Judith Chen, Steve Chen may be categorized as a "tippee" or "insider" who got inside knowledge from a company insider.
Conversely, it doesn't seem like Tim Daniels and Ken Hastings have direct access to the significant non-public facts on the settlement. They only made money by purchasing New World Industries shares because of the information provided by Steve Chen, who got it from his wife, Judith Chen. As
a result, Tim Daniels and Ken Hastings would not qualify as "insiders" under Rule 10(b)(5).In this instance, Steve Chen may be held liable for tipping off Ken Hastings and Tim Daniels, who went on to profit from the stock transaction after receiving the crucial non-public information from Chen. In turn, Tim Daniels and Ken Hastings may be held liable for tipping when they traded using Steve Chen's exclusive knowledge.
As the CEO of New World Industries, Judith Chen may have violated her fiduciary duties by disclosing to her husband, Steve Chen, crucial non-public information regarding the settlement. Judith Chen has a duty as a business insider to refrain from trading on or revealing material non-public information, and it may be deemed a breach of that duty if she shares such knowledge with her spouse. In this instance, Steve Chen is the one who truly benefited personally from the tip; after receiving the crucial non-public information from his wife, Judith Chen, he shared it with Ken Hastings and Tim Daniels, which led to successful stock trades. As per their agreement, Tim Daniels also gave Ken Hastings a percentage of his profits, which may be considered a benefit received by Hastings.
Steve Chen's altered behavior and remarkable satisfaction following his wife Judith Chen's call regarding the successful settlement suggest that he benefited personally. This suggests that he may have been motivated to profit from the stock trades by disclosing the important non-public information to people like Tim Daniels and Ken Hastings. This may prove a personal profit, which is necessary for insider trading rules to establish tipster culpability. It's crucial to remember that insider trading rules, such as Securities Act of 1934 Rule 10(b)(5), are complicated and that each case's particular facts and circumstances will determine how they apply. Court rulings and legal interpretations may change over time. For a thorough examination of insider trading responsibility in any particular circumstance, it
is thus advised to speak with legal professionals or examine current legal resources.
References
Prenkert, J. D., Barnes, A. J., Perry, J. E., Haugh, T., & Stemler, A. R. (2022).
Business law: The ethical, global, and digital environment
(18th ed.). McGraw-Hill.
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