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. Emerson went
on a weekend fishing trip with his uncle, Ernest Wallace. Emerson mentioned to Wallace that he had
been putting in a lot of extra hours at the office planning a takeover of Dakota Gasworks. On returning
from the fishing t rip, Wallace met with a broker from Chambers Investments and purchased $20,000 of
Reliant stock. Three weeks later, Reliant made a tender offer to Dakota Gasworks stockholders and
purchased 57% of Dakota Gasworks stock. Over the next two weeks, the price of Reliant stock rose 72%
before leveling out. Wallace then sold his Reliant stock for a gross profit of $14,400.
Using the information presented in our reading material, answer the following questions:
1. Would registration with the SEC be required for Dakota Gasworks securities? Why or why not?
2. Did Emerson violate Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5?
Why or why not?
3. What theory or theories might a court use to hold Wallace liable for insider trading?
4. Under the Sarbanes-Oxley Act of 2002, who would be required to certify the accuracy of financial
statements filed with the SEC?
In responding to the questions be sure to:
• Analyze the rules that determine when issuing corporations must file a registration
statement with the Securities Exchange Commission.
• Discuss the SEC rule 10b-5 and whether or not it applies to the above case.
• Discuss insider trading, tipping, and misappropriation.
• Examine the Sarbanes Oxley Act of 2002.
3 answers
1 answer