The use of mandatory arbitration clauses in contracts between ...

[mikaylakyoung]

The use of mandatory arbitration clauses in contracts between investors and their brokerage firms has been prohibited by the SEC.
 a. True
  b. False
  Indicate whether the statement is true or false

Question 2

Insider Reporting and Trading. Ronald Bleakney, an officer at Natural Microsystems Corp (NMC), a Section 12 corporation, directed NMC sales in North America, South America, and Europe. In November 1998, Bleakney sold more than 7,500 shares of NMC stock. The fol-lowing March, Bleakney resigned from the firm, and the next month, he bought more than 20,000 shares of its stock. NMC provided some guidance to employees concerning the rules of insider trading, and with regard to Bleakney's transactions, the corporation said nothing about potential liability. Richard Morales, an NMC shareholder, filed a suit against NMC and Bleakney to compel recovery, under Section 16(b) of the Securities Exchange Act of 1934, of Bleakney's profits from the purchase and sale of his shares. (When Morales died, his executor Deborah Donoghue became the plaintiff.) Bleakney argued that he should not be liable because he relied on NMC's advice. Should the court order Bleakney to disgorge his profits? Explain.

[djofnc]

Answer to Question 1

FALSE

Answer to Question 2

Insider reporting and trading
The court ordered Bleakney to disgorge his profits. The court explained that Section 16(b) of the Securities Exchange Act of 1934 precludes corporate insiders from making short-swing profits from transactions in the corporation's stock. The statute requires disgorgement to the company of any profit derived from the matching of any purchase and any sale of a . . . security . . . within a six-month period by a statutory insider, irrespective of intent or whether overall trading during that six months (i.e., all sales and purchases combined) resulted in a loss. For the statute to apply, it is not necessary to show any actual misuse of inside information or of any unlawful intent. Rather, Section 16(b) operates mechanically, and . . . imposes liability without fault. In this case, Bleakney was an NMC officer in November of 1998, when he sold the shares at issue . . . . To the extent Bleakney's duties as an officer may have been reassigned or limited after his resignation on March 22, 1999, his actions after that date still fall within the scope of Section 16(b), for all of the sales sought to be matched with subsequent purchases indisputably occurred prior to the resignation. The sales and purchases were within six months of one another. Bleakney's defense, that NMC provided guidance to its employees concerning executive and insider stock transactions but did not caution him as to potential liability under Section 16(b), is not available under that statute.