suit holding that there was no security involved in the transactions between

Suit holding that there was no security involved in

  • University of Texas
  • LEB 323
  • Test Prep
  • kellmargs2
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suit holding that there was no security involved in the transactions between the parties. Synopsis of Rule of Law: An investment contract type of security exists when the scheme involves 1) an investment of money 2) in a common enterprise 3) with profits to come solely from the efforts of others. Facts: Appellees solicited buyer-investors to raise earthworms claiming that little work was required and success was guaranteed by an agreement to repurchase at $2.25 per pound. Appellants allege that the success rate was necessarily
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lower than promised, the selling price of $2.25 was inflated, and the only way Appellees could sell at that price was to sell the worms to new worm farmers at inflated prices. Appellees claim that this is an investment contract and therefore Appellees have sold a security. Since the security was not registered under the Securities Act of 1933, Appellants have the statutory right to rescind under Section: 12. Issue: Whether the transaction between the parties involved an investment contract. Held: Yes. The transaction between the parties involved an investment contract. US v. O’Hagan {misappropriation, insider trading} Brief Fact Summary: Respondent, James O’Hagan, was an outsider who had access to confidential information, and he profited from the information at the expense of the company and other shareholders. The Securities and Exchange Commission (SEC) accused Respondent of Section:10(b) and Section:14(e) violations. Synopsis of Rule of Law: An outsider who misappropriates confidential information to personally benefit violates Section:10(b) because there is deception in connection with the purchase or sale of a security. Facts: Respondent was a partner in a law firm, Dorsey & Whitney, which was representing a company that was potentially tendering an offer for common stock of the Pillsbury Company. Respondent was not personally involved in the representation, but he was aware of the transaction enough to know that if he purchased Pillsbury securities now that they would increase in value once the offer went through. Respondent was going to use the profits from this transaction to replace money that he embezzled from the firm and its clients. After the offer went through, he made a $4.3 million profit. The SEC investigated Respondent’s transactions and claimed he violated Section:10(b) and Section:14(e) for misappropriating confidential information. A jury convicted Respondent. Issue: There are two issues regarding Section:10(b) and Section:14(e). The first issue is whether Respondent violated Section:10(b) and Rule 10b-5 when he misappropriated nonpublic information to personally benefit through the trading of securities.The second issue is whether Rule 14e-3(a) exceeds the SEC’s rule- making authority as granted by the Securities and Exchange Act.
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