Business Law Critical Thinking Group Assignment

1. Did Svoboda or Robles Commit Any Crime?

      The case of Karel Svaboda and Alena Robles involves inside trading if there can be evidence  to show that they were involved in the actions.  Inside trading involve s transacting securities through permeation of private information that has not been conveyed to the general public.  An insider is often prevented from participating in transacting company’s stock because of the liberty they have in accessing private information.  Insider trading is restricted by the Securities Act of 1933 as well as the Securities Exchange Act of 1934. It is also closely monitored by the Securities and Exchange Commission (SEC). 

      Section 16 of the 1934 Act offer guidelines on who are covered by insider trading. They comprise of corporate officers, corporate manages as well as any other individual who has more than 10% shares in the organization. Svoboda is a credit officer in Rogue Bank and thus is covered by the insider-trading regulations as he has non-public information about Rogue Bank clients.  As an insider , one is expected to withhold any information that the company deems confidential  and  should not also use it the purchasing or selling securities of the company.

       Rule 10b (5) of the 1934 Act illegalizes the trading of securities on the grounds of confidential/private information. It further specifies that one commits a crime if at the time o the transaction, he/she were aware that the trade was grounded on non-public information.  Furthermore, the 1934 Act stresses that not only utilization but also possession of confidential information could amount liability.  SEC Rule 10b (5) provides that in the case of outsiders like Robles uses non-public information, they ought to have been a fiduciary duty by an insider that has been violated.  

      Robles is a tippee as he used information retrieved from an insider who has contravened his/her fiduciary duties. In handling insider-trading cases where there is a trippee, the court will rely on whether fiduciary duty had been violated by insider before finding an outsider liable. Robles contravened the provisions of the Act as he cooperated with an insider to access non-public information and used it to trade securities. Nonetheless, to note the case of Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc. (2008) w here the court dismissed claims against Scientific Atlanta and Motorola – Section 10(b) arguing that private right of action cannot be applied to “outsiders.  Svoboda will thus be liable as a tipper as he shared indie information and also be responsible for insider trading he used some of the information to trade securities for his personal gain. On the other hand, Robles will be found to have violated the 1934 Act as he is a tippee.

•  Are Svoboda and Robles subject to civil liability, who can sue and what are the sanctions

            Svoboda and Robles will be subject to civil liability since when found liable, they will be required to pay for damage, fines and other court orders.  The Securities and Exchange Commission (SEC) has the responsibility to enforce the securities law under the 1934 Act.  The SEC acts a quasi-judicial body and thus can sanction fine and reprimand companies that contravene security regulations.  Companies can file complaints with the SEC on cases of insider-trading and other fraudulent acts in the company connected to securities.  In this case therefore, Rogue Bank after investigating and collecting evidence to show that Svaboda worked in harmony with Robles to trade securities using non-public information, can sue them through the SEC.

• Defenses Svoboda or Robles could raise and their likelihood of success?

            To avoid liability, Svoboda or Robles could raise an affirmative defense.  An affirmative defense enables an individual to deny accusations of trading securities using non-public information.   Svoboda and Robles need to show that the transactions were made within the terms of the bank.  To establish that the trading of securities were done in accordance with the terms of the company by showing that they were oblivious that the information he/she used was not a confidential information. They ought to show that reasonable measures were taken to avert the insider trading.

            Insider trading remains legitimate if it adheres to the rules in the 1934 Act.   The substance of these rules is that an  insider cannot buy or sell securities until when the information is revealed.  Moreover, an insider is restricted from tipping outsiders.   Though Robes and Svoboda may try use the above defenses, their chances of success are slim.  The facts of the shows   it was a scheme between Svoboka and Robles and thus both of them were aware that they were using non-public information to trade securities.

            The gist of the 1934 Act seeks to protect investors and companies from fraudulent individuals.  In case insider trading, the court can order that the plaintiff, which in this case is the Rogue Bank, recovers the surplus amount that was spent due to the schemes of Svoboka and Robles.  Moreover, engaging in actions contrary to the provisions of the Rogue Bank policies amounts to breach of employment contract and thus can lead to termination of the employment contract.