Briefing Paper I: Critical Legal Thinking:
United States v. Bhagat: Case Questions:
Question 1: Insider trading is the practice in which a person who knows of insider information within a publicity traded company either sells their stock prematurely that they know is going to fall or who tips off a client that the stock is going to plummet in which case, causes the client to sell early and have an unfair advantage in the market, (Cheesemann, 2013). The practice of insider trading is higher regulated by the SEC within the United States. Tipping is the practice of providing insider trading information to another person who can benefit prematurely from that stock information and essentially, allows the person tipped off to obtain a higher profit than other prospective investors in the market, (Cheesemann, 2013).
Question 2: Based on the facts, I do think that Bhagat committed the crimes that he was convicted of because his story seems falsified. Unless there is other evidence that he didn’t see the email and also, did not see his friend that day to tip him off, then it seems that Bhagat did commit both insider trading and tipping. That being said, one could always make the counter argument that he truly did not know because these misunderstandings do happen; however, I think it is likely that the court will not see the evidence in this light unless new evidence is subsequently brought forth.
Question 3: Unfortunately, it does not seem that the government catches all of the insider trading that transpires within the United States. If I had to venture a guess, I would say that 25% of insider trading is caught by the SEC because it usually takes a whistleblower to alert the SEC that insider trading is happening before there is an awareness of the practice occurring, (Cheesemann, 2013).
Briefing Paper 2: Law Case with Answers:
Smith v. Van Gorken relates to a case where a significant share holder of a company called Trans Union Corporation was trying to shift his assets in anticipation of his upcoming retirement, (Cheesemann, 2013). Van Gorken decided to meet with Pritzker, who was a corporate take over specialist without consulting the board members, (Cheesemann, 2013). After meeting with this specialist, he offered the sale of a stock at a very good price. That being said, the real issue here is whether Van Gorken’s substantial ownership of shares should have an effect on whether the board breached their fiduciary duty of care? The answer is absolutely because the board should have conducted more research on who was buying out Van Gorken’s stock options. By failing to do this, the board did not adequately protect the shareholders as is stipulated in the by-laws. The fact that Van Gorken owned such a substantial amount of stock is the key to proving both his culpability and the board of directors in this transaction.
Briefing Paper 3: Critical Legal Thinking Cases:
16.6 Dividends:
Dividends is the practice of paying stockholders a percentage of earnings on the value of their invested shares, (Cheesemann, 2013). Pertaining to whether dividends play a role in United States business, there is surely a link between dividends and United States commerce. That being said, only certain publically held companies offer dividends to their shareholders. Those corresponding dividends are paid out quarterly, (Cheesemann, 2013). If one is unsure whether the company they have invested in pays out dividends, then it is wise to look at the corporate bylaws or to consult an extra in the field to manage their stock investments. This way, one can verify whether the company they invested in pays dividends and also whether those dividends are being properly administered to the share holders.
17.5 Section 10(b): Section 10(b) is one of the most important aspects of owning a publically traded company. 10(b) makes it illegal to provide insider trading information to anyone including: employees, prospective clients, and anyone who would be unjustly enriched by the knowledge of such information, (Cheesemann, 2013). The case exemplified is T.O.N.M. Oil and Gas, which is an excellent example of insider information being offered that should have been turned down. One has to be very careful with this sort of information because ever since the major financial scandals that the United States has faced such as Enron, the SEC takes 10(b) very seriously and isn’t afraid to close down any business no matter the size.
26.3 Forum-Selection Clause: The Forum-Selection Clause is a huge part of disputes that are brought in the United States with both foreign and domestic companies in that the culture is to look for the jurisdiction that will bring the best fiscal reward to the injured party, (Cheesemann, 2013). This is why in the Zapata case that Zapata tried to bring the case in a United States court even though the contract stipulated the court in London, (Cheesemann, 2013). The reason for this was simple. The United States is known for giving higher awards in damages, which is why Zapata wanted this to be the forum for their case in order to recover more in the long run. This practice transpires all the time in commerce in the United States and is an enormous part of the United States legal culture.
16.3 Corporation: Corporation law is also a major part of the legal culture within the United States. The reason for this is that a corporation is seen as a legal person and it matters where the corporation is domiciled, (Cheesemann, 2013). This issue comes up a great deal when there are legal disputes because it has to be shown that the corporation, like a person, had sufficient ties to a state in order to be tried there, (Cheesemann, 2013). If this threshold is not met, then the corporation can change the venue to a more convenient forum both geographically and legally that would benefit their lawsuit, (Cheesemann, 2013).
Briefing Paper 4: Ethics Case:
The case discussed in 16.9 that relates to ethics cases is inspired from Chelsea Industries, Inc., v. Gaffney, (Cheesemann, 2013). In short, Chelsea Inc. was engaged in a business of manufacturing pressure sensitive tape, (Cheesemann, 2013). Ideal was managed by Gaffney that was set to open a competing business that his company (Ideal) did not tell Chelsea Industries, (Cheesemann, 2013). What made this particularly complex was that Ideal was a subsidiary of Chelsea Industries, (Cheesemann, 2013). Gaffney even invited board members of Chelsea Industries to join him in his new business venture, (Cheesemann, 2013).
Chelsea Industries Case Questions:
Question 1: The fiduciary duty of loyalty is a complex definition in that it defines an obligation for a prospective employee of a corporation that have an obligation to put the corporation’s interests above their own, (Cheesemann, 2013). Applying his to the case at hand, the case was debating as to Gaffney owned Chelsea Industries a fiduciary duty of loyalty and whether he violated that duty of loyalty by opening his own competing business and trying to steal Chelsea Industries current employees, (Cheesemann, 2013).
Question 2: Based on the facts provided, one has the basic framework to ascertain whether Gaffney was acting ethically. Given what the textbook stated, it is highly unlikely that Gaffney was acting ethically in this sense because of his dishonesty throughout the whole transaction. Normally, it would be more difficult to track down a breach of the fiduciary duty such as this one; however, the way that Gaffney tried to steal the key employees of Chelsea Industries in a competitive business based on the association with Chelsea Industries, he does not have a great deal of credibility to stand on unless alternate evidence is submitted. That being said, if new evidence were to be introduced, it would be necessary to complete this analysis once again.
Question 3: Based on what was provided in the condensed version of the case, it is obvious that Gaffney and his partners breached their fiduciary duties, (Cheesemann, 2013). The reason for this is that they took company resources from Chelsea Industries including key personal and business knowledge and formed a competing company without any consideration of how that company could take business from Chelsea Enterprises. Had these gentlemen had the best interests in the company they were working for, this would have not transpired.
References
Cheeseman, H.R. (2013). The Legal Environment of Business and Online Commerce: Business Ethics, E-Commerce, Regulatory, and International Issues. (7th ed.). Upper Saddle River, NJ: Prentice Hall.
