Charlie Seam is a broker for a major stockbroker in New York ...

[Beheh]

Charlie Seam is a broker for a major stockbroker in New York City. Charlie took a job at night with a janitorial firm that is responsible for doing the cleaning on several of the major law firms in New York. These firms also handle the legal business for the largest companies in the United States. Over the past few years these same firms have drafted the documents and done the necessary filings for takeovers among these firms. Charlie has discovered that, as a supervisor, he is able to move freely around the offices and read of developing events on the partners' desks. Through this job Charlie has been able to make some very good investments for himself and his clients. Do Charlie's actions violate 10(b)?

Question 2

Pan American World Airways made a partial call for its convertible debentures. At the time of the call, it was holding merger negotiations with another corner. Eight days after the call, the merger was announced and the value of the stock went up. Several debenture holders sold their debentures in the interim. Is the company liable under Section 10b-5?

[skipfourms123]

Answer to Question 1

Probably yes because he had no interest in the information and was violating the client's confidence by using the access to the offices for obtaining information. On the other hand, a good argument could be made that Charlie is no different than the printer and that if he happens along on information that is valuable, there is no breach of duty.

Answer to Question 2

No, see Reiss v. Pan American, 711 F.2d 11(2nd Cir.1983).