Author Question: The Supreme Court has discouraged the use of arbitration to resolve disputes involving securities ... (Read 109 times)

newyorker26 · **on:** Jun 24, 2018

The Supreme Court has discouraged the use of arbitration to resolve disputes involving securities firms due to persistent bias in favor of the industry and against clients.
a. True
b. False
Indicate whether the statement is true or false

Question 2

SEC Rule 10b-5. In early 1985, FMC Corp made plans to buy some of its own stock as part of a restructuring of its balance statement. Unknown to FMC management, the brokerage firm FMC employedGoldman, Sachs & Codisclosed information on the stock purchase that found its way to Ivan Boesky. FMC was one of the seven major corporations in whose stock Boesky allegedly traded using inside information. Boesky made purchases of FMC's stock between February 18 and February 21, 1986, and between March 12 and April 4, 1986. Boesky's purchases amounted to a substantial portion of the total volume of FMC stock traded during these periods. The price of FMC stock increased from 71.25 on February 20, 1986, to 97.00 on April 25, 1986. As a result, FMC paid substantially more for the repurchase of its own stock than anticipated. When FMC discovered Boesky's knowledge of its recapitalization plan, FMC sued Boesky for the excess price it had paidapproximately 220 million. Discuss whether FMC should recover under Section 10(b) of the Securities Exchange Act and SEC Rule 10b-5.

beccamahon · **Reply #1 on:** Jun 24, 2018

Answer to Question 1

FALSE

Answer to Question 2

SEC Rule 10b-5
FMC did not succeed in its suit against Boesky. A federal district court dismissed FMC's claims, and on appeal, the U.S. Court of Appeals for the Second Circuit affirmed the dismissal. FMC suffered no injuryany amounts paid out for its stock inured to the benefit of its shareholders. And those amounts were not unfair: The absence of evidence that the 220 million increased payout constituted something other than FMC giving its public shareholders full consideration for their stock is fatal to FMC's case. Besides, FMC had no legitimate interest in short-changing the public shareholders . . . by maintaining in confidence business information pertinent to the fair value of the stock. . . . FMC cannot claim that Boesky stole a premium the company was entitled to, since FMC had no legitimate interest in realizing a gain at its public shareholders' expense. . . . Absent some legitimate purpose for keeping the information secret or some tangible harm from the early disclosure, FMC suffered no legally cognizable injury.