LAW CASE STUDY and Questions: insider info trading; sell of company security to the public

Question 1. What is the process by which a company sells securities to the public? Question 2. How is insider trading regulated by Section 10(b), SEC Rule 10b-5, and Section 16(b)? Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. Question 3 Dale Emerson served as the chief financial officer (CFO) for Reliant Electric Co., 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 trip, 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 percent of Dakota Gasworks stock. Over the next two weeks, the price of Reliant stock rose 72 percent before leveling out. Wallace then sold his Reliant stock for a gross profit of $14,400. 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, who would be required to certify the accuracy of financial statements filed with the SEC?