Author Question: The arbitration process used by investment firms and their clients is governed by SEC rules. a. ... (Read 96 times)

future617RT · **on:** Jun 24, 2018

The arbitration process used by investment firms and their clients is governed by SEC rules.
a. True
b. False
Indicate whether the statement is true or false

Question 2

Violations of the 1934 Act. 2TheMart.com, Inc, was conceived in January 1999 to launch an auction Web site to compete with eBay, Inc On January 19, 2TheMart announced that its Web site was in its final development stages and expected to be active by the end of July as a preeminent auction site, and that the company had retained the services of leading Web site design and architecture consultants to design and construct the site. Based on the announcement, investors rushed to buy 2TheMart's stock, causing a rapid increase in the price. On February 3, 2TheMart entered into an agreement with IBM to take preliminary steps to plan the site. Three weeks later, 2TheMart announced that the site was currently in final development. On June 1, 2TheMart signed a contract with IBM to design, build, and test the site, with a target delivery date of October 8. When 2TheMart's site did not debut as announced, Mary Harrington and others who had bought the stock filed a suit in a federal district court against the firm's officers, alleging violations of the Securities Exchange Act of 1934. The defendants responded, in part, that any alleged misrepresentations were not material and asked the court to dismiss the suit. How should the court rule, and why?

lin77x · **Reply #1 on:** Jun 24, 2018

Answer to Question 1

TRUE

Answer to Question 2

Violations of the 1934 Act
The court refused to dismiss the complaint. The court explained, A statement is material if its disclosure would alter the total mix of facts available to an investor and if there is a substantial likelihood that a reasonable shareholder would consider it important to the investment decision. In that regard, it appears to the Court that disclosure of the fact that Defendants had not yet entered into a contract with IBM to design and build the Web site would certainly have been considered an important part of an investment decision by any shareholder. The court concluded, Defendants had no reasonable basis to believe that the Web site was in its final development' stages when the statement was issued on January 19. The court emphasized that the preliminary agreement with IBM was not reached until early February. In other words, two weeks elapsed from the date of the first announcement until the Web site was even in its preliminary development stage. The court added that it could not understand how Defendants . . . could have reasonably believed that they could have successfully designed, built and implemented a web site that was intended to be one of the largest preeminent online auction sites' that would compete with such established sites as eBay.com, in the course of the five months. Misstatements or omissions are actionable if disclosure of the truth would affect the market price of the stock. t appears to the Court that the disclosures released by Defendants did in fact have an effect on the stock price and the trading tendencies of the investors.