ANEXO III: Folleto del “Programa de Alojamiento Compartido”
3 DATOS ECONOMICOS
4. DATOS DEL ALOJAMIENTO Régimen de tenencia:
(a) How can the court say that, although the source/principal (law firm) has been defrauded, the existence of liability for misappropriation turns on the non-existent fiduciary duty to the shareholders of the firm in which securities were bought/sold? Unless you disagree with insider trading prohibitions, the outcome is the right one.
(b) POLICY
(i) We should really say that, asymmetric information is a classic
market failure that leads to allocative inefficiencies (arbitrage, fairness). So, there are two baskets of informational asymmetries – bad and good. Bad ones are where they “fall into” the information by the nature of the job (insiders), or steal the information. Good ones are where analysts have informational advantages, but they will eventually bring that information to the marketplace. They lose the incentive to gain the information if they are not allowed to have asymmetrical information. 10b-5 really creates a regime that tries to permit/encourage those informational asymmetries that have the effect of getting information to the market. On the other hand, we want to get rid of “bad asymmetries. If this is what we’re trying to do, the O’Hagan result is consistent with the policy described above.
b) Other issues with Misappropriation
(1) A duty of trust and confidence exists for the purpose of the misappropriation theory whenever 1) a person agrees to maintain the information in confidence, 2) the persons sharing information have a history, pattern, or practice of sharing confidences such that the recipient knows or should know that there is an expectation of confidentiality, and 3) when information is shared with a parent, spouse, child or sibling, unless recipient can show there was no reasonable expectation of confidentiality.
XV.
NON-INSIDER TRADING VIOLATIONS UNDER 10B-5
A.
Generally
1. Material misstatements or omissions with respect to the purchase or sale of securities.
a) Elements:
(1) Standing
(a) buyer or seller only (not intent to buy or sell); must “touch” the transaction
(2) Material misstatement/omission
(a) in connection with the sale/purchase (3) Scienter
(a) (Ernst & Ernst) Any state of mind (scienter) that is at least recklessness (where is the line between reckless and negligent?), and intent to deceive, is required under 10b-5. Recklessness means extreme departure from standards of ordinary care. Scienter does not require actual desire to mislead investors to further some self-serving scheme; rather, that defendant was aware of state of affairs and could
anticipate the harm is sufficient. SEC was extended to SEC injunctive actions, as well.
(b) HYPO:
(i) As someone at company, what role does it play in scienter if
rely on the advice of counsel, or what role should it play? Reasonable reliance? Conduct reasonable grounds to believe? See section 11 and BarChris.
(4) Reliance
(a) Basic Inc. v. Levinson
(i) can be presumed on the basis of materiality and by the fraud
on the market theory; but is a rebuttable presumption based on 1) market makers have knowledge of false information and incorporate it; 2) true information dissipated the impact of the fraud; and 3) Plaintiff acted despite actual knowledge of the fraud.
(b) Information need not actually be relied on; it only needs to be material, in the sense that it could be a factor that is considered in the decision-making process. The presumption of reliance is most often found in a case of an omission. Plaintiff needs to show that it is aware of the misstatement/omission.
(5) Causation
(a) Negative causation is allowed (Rule 10b-5) by Section 21D(b)(4) of the 34 Act (Private Securities Litigation Reform Act). Difference between 10b-5 and Section 11 negative causation is that negative causation is a defense under Section 11, and a burden of proof for the plaintiff under 10b-5.
(6) HYPO:
(a) What if plaintiff believed the person making the statement was a liar? Reliance? Belief in the integrity of the market? Not likely. So fraud on the market theory presumption is not supported. What about a person who is completely unaware of how the market works, who bought for reasons unrelated to the market? Should this person get the presumption of reliance from the fraud on the market? Not likely, but should she be able to piggy back on the theory that everyone else who was aware set the price and she benefited? Maybe. Consider purpose for buying or selling.
(7) QUESTION:
(a) Does anyone really rely on the integrity of the marketplace? What does market integrity even mean? Does anyone really believe that stock prices reflect the value of the firm? Are we really saying that
there is some sense that stock prices are “honest” and “fair”? Then does the ECMT theory really apply? What does all the “noise trading” mean with respect to the fraud on the market theory?
Rule Title Description Cross-Reference MC 6.21(e) Future Benefits as
Consideration
If the corporation never receives the benefits, the shares are still outstanding, and the corporation can either 1) seek to recover the consideration; 2) escrow the shares until the consideration is received, and cancel the shares in the event of default; or 3) forbid the shares from being transferred until it receives consideration for them.
7.32 MC Shareholder
Agreements
designed to permit virtually any control arrangement in a corporation that relates to the governance of the entity, the allocation of the return from the business, and other aspects of the relationships among shareholders, directors, and the corporation. The agreement must be unanimously approved by the shareholders; it may appear in the articles of incorporation, the bylaws, or a shareholders' agreement. An agreement under § 7.32 is valid for ten years unless otherwise provided in the agreement. It automatically terminates if the shares of the corporation become publicly traded on a national securities market.
8.05(d) (MC)
“New investors” must be elected at next annual meeting, even if the term of the person they replace expires after that.
8.11 MC Director
Compensation
Directors are entitled to compensation unless articles or bylaws provide otherwise. Common Law: directors are not entitled to compensation unless 1) extraordinary services, and 2) services were requested/accepted by corp. officials
8.30(B) (MC)
Directors are held to an inquiry notice standard, such that they can rely on subordinates who have competence and expertise in the area of the question, unless the directors know of facts or circumstances making the reliance unwarranted.
XVI. BARCHRIS
MC 11.01 Plan of Merger
Elements
1) Merger’s terms/conditions, 2) how the terms will be effectuated, 3) any amendments on the survivor’s articles made necessary by the merger, 4) any other terms the corporations have agreed on.
MC 10.04, 11.03(f)(1)
Non-voting shares and ability to vote
If the amendment would change the rights of nonvoting class of shares, the class affected by the amendment must approve the amendment as a class even if it doesn’t otherwise have the right to vote. Specific situations: 1) increase/decrease the authorized shares of the class; 2) limit/deny a preemptive right; 3) change shares of a class into a different number of shares of the same class; 4) change rights, preferences, limitations of the class; 5) create a new class of shares with superior or substantially the same financial rights or preferences; and 6) increase rights, preferences, number of shares of any class with superior or substantially the same financial rights/preferences.
MC 11.03(g) Small Scale
Merger
Surviving corporation is much larger than the disappearing corporation. Its feature is that it doesn’t require a shareholder vote of the surviving corporation. Two prerequisites: 1) the number of post- merger voting shares of the survivor must not exceed the number of pre-merger voting shares by more than 20%, and 2) the merger must not require any change to the survivor’s articles of incorporation.
Shareholders of surviving corporation: no voting or appraisal rights. Shareholders of disappearing corporation: voting and appraisal rights.
MC 11.03 % of votes to
approve merger
Most statutes require majority of the outstanding stock entitled to vote. In addition, many statutes require a 2/3 vote by the outstanding stock of each constituent corporation. Some statutes go further, requiring majority vote by each class of stock, whether or not the class normally has voting rights. The rule requires separate approval by a class of shares if the number of authorized shares in the class will change; the shares in the class will be exchanged or reclassified into another class of shares; the rights or preferences of the class will be modified; a class of shares with superior rights
will be created or the rights of existing prior stock strengthened; the preemptive rights of the class will be removed or limited; or accumulated but undeclared dividends for the class will be affected.
MC 11.04 Short Form
Merger
Recognized by many states, doesn’t require shareholder approval. Prerequisite is that the two corporations must have a parent-subsidiary relationship; the parent must own more than a stated percentage of the subsidiary’s stock (90%-95%). BOD for both corporations must approve the merger. The shareholders of the subsidiary have no voting rights, only appraisal rights. The shareholders of the parent company have no voting or appraisal rights.
MC 11.06 Survivor rights In a merger, the surviving corporation, by operation of law, takes all of the disappearing corporation’s rights, assets, and liabilities.
MC 12.01 Exceptions to
Steps to Sell
A sale in the ordinary course of business. Courts are split on another exception, namely, a sale of assets where the court is insolvent or otherwise distressed.
MC 12.01-2, 13.02
Sale of All or Substantially All Assets
Director Approval – by a majority of directors at a properly convened meeting; and Shareholder Approval – by shareholders of the selling corporation (exceptions). A simple majority of shares is entitled to vote is generally required. Few require 2/3 majority.
DCC 271
13.02(a)(4) MC
Shareholder Appraisal Rights
Shareholders of a class of stock are entitled to appraisal rights if they dissent from an amendment affecting their class of shares by 1) materially and adversely altering or abolishing a preferential right, 2) excluding or limiting right to vote on any matter, 3) altering or abolishing a preemptive right, or 4) creating, altering, abolishing a right of redemption.
MC 13.01(3) Fair Value for Appraisal Rights
Fair value is determined immediately before the change in question is announced or takes place, excluding any appreciation or depreciation in anticipation of the action. The idea behind this timing is that a shareholder opting out of a corporate change shouldn’t get any reflection of that change.
13.02(b) Remedies for
Dissenting Shareholders
Appraisal only available, unless fraud or illegality is present. Look for two principal kinds of situations: crucial information misstated or omitted from proxy statements and other merger-related documents; unfairness serious enough to constitute fraud
Delaware Approach: appraisal only available except for cases of fraud, misrepresentation, self-dealing, deliberate waste of corp. assets, gross and palpable overreaching
MC 13.31 Challenging
Determination of Fair Value
No Misfeasance by Corp/Dissenters: corp. bears costs of proceeding, including the court-appointed appraiser, except dissenters’ counsel and expert fees.
Dissenters acted in bad faith: must pick up some or all proceeding costs
Corporation acted in bad faith: corp. must pick up some or all counsel and expert fees 10b-5 (34
Act)
Insider Trading Prohibits, in connection with the purchase or sale of any security: the employment of any device, scheme, or artifice to defraud; any misstatements/omissions of material fact; and any act, practice or course of business that operates as a fraud or deceit
Section 10b, Section 16(b)
13(d) SEC Disclosure and
Tender Offers
A private party can (very rarely) seek equitable relief for a 13(d) violation because such relief is only possible if it is not only equitable, but the plaintiff is facing irreparable harm. Also, disclosure requirements do not apply to non-voting securities. Acquiring preferred stock triggers 13(d) disclosure requirements only if the shares have voting rights.
13(d)(3) Definition of
Person for WA
Person includes not only a single person, but also two or more people acting as a partnership, limited partnership, syndicate, or other group for the purpose of acquiring, holding, or disposing of the securities of an issuing company.
14(d)(2)
13(d)-(e), 14(d)-(f)
Tender Offer Requirements
1) Filing Requirements (ownership exceeds 5%, files Schedule 13D) and 2) Antifraud Requirements Rule 10b-5 14(d)(5)
SEC
Tender Offer and Protection of
14(d)(6) SEC
Pro Rata Rule - If the offeror offers to purchase a portion of the corporation’s outstanding stock and more shares than he wanted are tendered (“oversubscribed”), the offeror must purchase shares pro rata from each tendering shareholder
14(d)(7) SEC
Target Shareholders
Best Price Rule – If the offeror, before the offer expires, increases the price he’s willing to pay for shares, he must pay that increased amount to everyone whose shares he purchases, including those who tendered before he increased the price.
14-3 (SEC) Disclosures in
Proxy Statements
Requires disclosure of information to shareholders in connection with proxy solicitations. Proxy statement must disclose conflicts of interest, management pay, details of major corporate changes to be subject to a shareholder vote. Any documents given to shareholders as a part of the solicitation process must first be filed with SEC
Section 14
14a-4 (SEC) Proxy Card with
Proxy Solicitation
Requires that a card be sent with proxy solicitations, which the shareholder can sign and return indicating whether or not he grants his proxy. If directors are to be elected, the card must include a means for the shareholder to withhold his authority to vote
Section 14
14a-7 SEC Must Mail
Shareholder Communications or Give Them a Shareholder List
This is generally an issue when management wants to undertake an action requiring shareholder approval, and a group of shareholders opposes the action.
Section 14
14a-8 SEC Shareholder
Proposal Rule
Lets shareholders have their own proposals for action at an upcoming shareholder meeting including in management’s proxy statement. Such proposals generally involve social issues. There are significant restrictions on this shareholder right, the two most significant being that the proposal can’t be contrary to a management proposal, and it can’t relate to a director’s election.
Section 14
14a-9 SEC False, Misleading
Statements or Omissions Connected with Proxy Solicitations are Prohibited
The only other important proxy issue involves proxy contests. The most typical issue in a proxy contest is who pays for it. Only 14a rule that creates a private right of action for shareholders and corporations.
Section 14; TSC Industries
14(e) SEC Tender Offers Fraud is defined as both 1) misstatements and omissions of material fact, and 2) fraudulent, deceptive, or manipulative acts or practices in connection with any tender offer or request or invitation for tender offers. There MUST be some material fact misrepresented or omitted even though the section reads as though deception without material misstatements would suffice. Reliance is one of the elements necessary in such a claim.
Rule 10b-5 (14(e) is more broad than 10b-5, and does not require buyer/seller
102(b)(7) DCC
Directors’ Liability
Corporations can put a provision in their articles of incorporation limiting their directors’ liability for breach of the duty of care, except for intentional misconduct, knowing legal violations, or actions done in bad faith; authorizes certificates of incorporation to contain a provision eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of the duty of care with certain exceptions. The section only applies to suits for "monetary damages." Suits for equitable relief to enjoin a transaction and suits based on the breach of the duty of loyalty are not precluded by that section. A few state statutes apply to suits for equitable relief as well as to suits for monetary damages.
144 DCC Fairness Any one of director approval or shareholder approval or fairness will remove the taint of a conflict of interest. However, in practice, courts require fairness regardless of director or shareholder approval.