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 Under what theory might Darla be liable? Do the circumstances of this case meet all of the requirements for liability under that theory? Explain. Examine the SEC Rule 10b-5. Discuss whether or not Darla was liable under the misappropriation theory.
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- Under what theory might Darla be liable?
When conducting business, there are set certain rules that are supposed to be followed by the management and the employee to avoid going against the terms and conditions the business follows. In the case of Darla, the terms and conditions revolving around the operation of the business do not allow her to conduct business without the consent of the other business people(O’Leary-Kelly, et al., 2014). Darla may be liable in the theory which prohibits fraud, misinterpretation, and deceit in the sale and purchase of securities.
- Whether the case meet all circumstances under the theory.
The reason behind this question is because the theory provides that there is no consent of misinterpretation and deceit. This is not the case because Darla transacts with the dummies but the company makes profits (O’Leary-Kelly, et al. 2014). This may not be fraud since there is no loss in the company but there is a breach of the contract that was between Darla and then company.
- 3. Examine the SEC Rule 10b-5
The SEC rule provides that an employee should not employ any device or scheme to fraud (Payne, et al., 2015). Making……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..
………………………….First Class Purses & Accessories ………………………………………………………………………………………………………………………………………………………………………………………………………
References
O’Leary-Kelly, A. M., Henderson, K. E., Anand, V. & Ashforth, B. E. (2014). Psychological Contract in a Non-Traditional Industry Exploring the Implication for Psychological Contract Development. Group & Organization Management, 39(3): 326-360.
Payne, S. C., Culbertson, S. S., Lopez, Y. P., Bowel, W. R. & Barger, E. J. (2015). Contract Breach As A Trigger For Judgement To The Psychological Contract During The First Year of Employment. Journal of Occupational and Organizational Psychology, 88(1): 41-60.
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