Securities Regulation assignment:
In this assignment you have two hypotheticals. Read the facts carefully and write a legal memo answering what is required in each hypothetical.
Please use the IRAC method in answering the cases.
The deadline for submitting this assignment is May 27.
ASSIGNMENTS ARE INDIVIDUAL TASKS AND NOT GROUP ACTIVITIES. Copying of text from others or from other sources is not allowed – only brief quotations are allowed and only if indicated as such. You should reformulate existing text and use your own words to explain what you have read. It is not acceptable to retype existing text and just acknowledge the source in a footnote – you should be able to relate the idea or concept, without repeating the original author to the letter. The aim of the assignments is not the reproduction of existing material, but to ascertain whether you have the ability to integrate existing texts, add your own interpretation and/or critique of the texts and offer a creative solution to existing problems. Be warned: students who submit copied text will obtain a mark of zero for the assignment. It is also unacceptable to do somebody else’s work, to lend your work to them or to make your work available to them to copy
Read the following Facts carefully, then answer the question that follow to the best of your ability. Answers are marked based on your ability to identify relevant facts, to spot potential legal problems, and to present a coherent argument based on established law. There is no single correct answer. Discuss and explain as clearly and as elaborately as possible. Enjoy and Good Luck.
Issuer Corporation recently completed a registered initial public offering. Its registration statement became effective on February 9, 2016, and it sold all of the stock for $62/share that same day. The stock immediately began trading on the NASDAQ exchange.
The market price of Issuer’s stock declined gradually but steadily over the next month, reaching a price of $50/share on March 10. On March 10, Paula Plaintiff purchased 1,000 shares of Issuer stock on the NASDAQ exchange for $50/share. Paula did not read the Issuer registration statement before buying the stock.
The financial statements in Issuer’s registration statement reported gross sales in 2015 of $740 million and net income of $200 million. Issuer is one of the two leading companies in its industry, and each of these numbers was slightly higher than the corresponding figures for its closest competitor, Shark Enterprises. The Management Discussion and Analysis section of Issuer’s registration statement included the following statement: “We believe we will continue to be the most profitable, highest-selling company in our industry far into the future.”
On March 15, 2016, Issuer announced that the 2015 sales and income figures were incorrect because they included non-existent contracts fraudulently created by a lower-level employee to bolster his annual bonus. None of Issuer’s officers and directors was aware of this fraud, although the fraud would have been apparent if any of them had asked to see the contracts, because they don’t exist. The correct figures are gross sales of $730 million and a net income of $192 million. With these corrections, Issuer’s competitor Shark had both a higher net income and higher sales in 2015 than Issuer.
From March 15 to April 1, Issuer’s stock price fell from $50/share to $45/share. Shark’s stock price fell by almost exactly the same percentage over that period of time. The NASDAQ market index fell by an even greater percentage.
On April 1, Paula filed a complaint alleging that two parts of the registration statement were materially misleading: (1) the net income and gross sales figures in the financial statements; and (2) the statement in the MD&A section about being “the most profitable, highest-selling company” in the industry. Paula claims that these false and misleading statements violate sections 11 and 17(a) of the Securities Act, and Rule 10b-5. She has named a number of defendants, but I want you to focus on three particular defendants: Issuer Corporation itself, Danielle Director, and Larry Lawyer.
Danielle Director is a member of Issuer’s board of directors. She became a director about one month before the registration statement became effective. Danielle didn’t sign the registration statement because she was out of the country when the final version was filed. Danielle did, however, read the registration statement before it became effective. She also spent three hours with Issuer’s CEO and CFO going over the registration statement line-by-line to verify the information in it.
Larry Lawyer is the outside attorney who drafted Issuer’s registration statement. Larry was actually aware of the fraud, but said nothing to anyone about it. Some of the proceeds of the offering were used to pay Larry for his work on the registration statement.
Discuss the potential liability of Issuer, Danielle, and Larry to Paula under sections 11 and Rule 10b-5. Do not discuss the liability of any other potential defendant and do not discuss the
liability of these defendants under any other liability section.
Read the following Facts carefully, then answer the question that follows to the best of your ability. Answers are marked based on your ability to identify relevant facts, to spot potential legal problems, and to present a coherent argument based on established law. There is no single correct answer. Discuss and explain as clearly and as elaborately as possible. Enjoy and Good Luck.
GU pharmaceuticals develops, manufactures and markets antiviral drugs. In December 2019 the companies R&D department has reached to a formula that can possibly treat patients infected with the new Coronavirus. The formula is made of a substance called “XYZ”.
Joseph the CEO of GU pharmaceuticals was very excited about this news coming out of the research and development department. He thus, in an interview on a live TV show announced that the “GUF is poised for growth in the coming days and will be a world leader and savior and that the Coronovirus will be no longer a threat as our R&D department has reached to a treatment that is safe and reliable” he then expressed his expectation that revenues would increase by 30% and that earnings per share for the next year will rise more than 30%”. In another interview with the financial times magazine Joseph raised his expectation for revenues, predicting an increase of 50% per share, he also noted that the company success is not only related to the new antiviral drug but also because the meds they sell is considered worldwide as an effective safe and affordable medicine”
Soon after these statements Mr. Joseph has received number of emails from practitioners “describing to him that XYZ has serious side effects and that number of studies has linked this substance to artery problems including possible heart attacks.
On 15th of January Dr. Tom Banks called the head of the R&D department and a board member of GUF Mr. Brand, Dr. Banks expressed his worrisome about the use of the drug and asked if GUF has conducted any trials or studies of its on. Mr. Brand replied that they have not but they have hired a consultant to review the
product. Dr. Banks also later sent him the studies he has informed him about later in an email.
On March 1st a newswire channel reported that the FDA was not notified about the new drug manufactured by GUF. However, GUF later commented that they have not started selling in the US but only their sales were at China were they have had approval from the required authorities there.
Few days later, another news report have indicated that number of complaints were filed against GUF because of the side effects that their new medicine have caused. GUF stock thus fell from 12$ to 11$ soon after this information was reported.
On March 12th Good monrning America a nationally broadcasted news program reported that China FDA authority received dozen of complaints and Also the US FDA did not approve the application of GUF for the sale of the drug in the US and required further trials and studies.
Swiftly after this news, the stock price of GUF fell to $9 but in the few days after, it returned back to $11 per share. As, a result of all this GUF decided to file a Form 8-K with the SEC “ in the opinion of our consultant that there is no enough scientific evidence that XYZ causes artery problems and that we will begin conducting more animal and human studies to further characterize the side effects of our new drug”.
Discuss whether GUF has committed a securities fraud under the securities regulation act and rule 10b-5?