Unit 10 Discussion Topic: Insider Trading Throughout this course, many discussion opportunities come up where you need to respond to other people's opinions and comments. Then, respond to your Discussion topic after you have completed your Reading.

Unit 10 Discussion Topic: Insider Trading

Throughout this course, many discussion opportunities come up where you need

to respond to other people's opinions and comments. Then, respond to your

Discussion topic after you have completed your Reading.

CARDWARE Inc. plans to take over First Class Purses & Accessories (FCPA) in

an effort to coordinate elegant CARDWARE professional attire with items from

FCPA that will complement CARDWARE’s fashion designs. Darla, owner of

Darla’s Dummies, a mannequin manufacturer whom CARDWARE had used on

numerous occasions happened to be delivering mannequins to CARDWARE’s

principal place of business in Silkadonia. As she was bringing the last of the

dummies down the hall to the room where the dummies are dressed, she paused

to listen to a conversation coming from one of the open doors of the hallway she

was using. Realizing that a profit could be made from FCPA’s stock, Darla called

her broker and indicated that she wanted to purchase 50 % of the outstanding

stock that was available for FCPA. Darla bought 2,000 shares of stock at $30 a

share.

CARDWARE offered $50 a share and ultimately ended up paying $65 per share

for FCPA stock. Darla was no dummy, as she made a $70,000 profit on her stock

purchase.

The Securities and Exchange Commission (SEC) filed a suit in a federal district

court against Darla and others for alleged violations of, among other things, SEC

Rule 10b-5. [SEC v. Falbo 14 F.Supp.2d 508 (S.D.N.Y. 1998)]

Discuss the following, justifying your response using information from your

Reading

1. Under what theory might Darla be liable?

2. Do the circumstances of this case meet all of the requirements for liability

under that theory? Explain.

3. Examine the SEC Rule 10b-5.

4. Discuss whether or not Darla was liable under the misappropriation

theory.