Gm 597 Week 7
GM 597
Week 7 Assignments
41-2
I think that the court would deem that the investments made by the 1,600 people were securities. On page 647 of our text it states that under the Howey test, “a security exists if an investor invests money in a common enterprise and expects to make a profit form the significant efforts of others.†Given the information we have in the question, I believe that the promissory notes would fall under this test and would definitely be classified as securities.
41-7 As a chief officer of the corporation, Hoodes was granted stock options to purchase stock of the company at a discount. According to the SEC Section 16(b), it states that any profits made by a statutory insider on transactions involving short-swing profits (six month period), belong to the corporation. (pg. 660) Hoodes sold 6,000 shares for $38,350 on July 20, 1982. He was terminated on July 31, 1982 as an officer of the corporation. On August 20, 1982, Hoodes exercised options to purchase 6,000 shares that cost $3.01 per share, which at that time were trading at $4.50 per share. Since Hoodes was an executive officer when he sold the 6,000 Sullair shares, he cannot exercise his option to purchase shares for profit within the short-swing time frame. The profits would belong to Sullair Corporation. He would have had to wait until January 1983 to sell and keep the profit. Although Hoodes was terminated as an officer on July 31, 1982, SEC Section 16 continues the rule that insiders are liable for transactions that occurred within six months of the last transaction engaged in while an insider of the company. (pg. 661)
51-2
I do not think that Ernst and Whinney are liable in this case. They did not engage in actual or constructive fraud. (pg. 806) They had no information that would lead them to know that FAMCO was going to give the audit reports to Hutton, which Hutton used as a basis for purchasing loans from FAMCO. Under the Ultramares doctrine an accountant can
Week 7 Assignments
41-2
I think that the court would deem that the investments made by the 1,600 people were securities. On page 647 of our text it states that under the Howey test, “a security exists if an investor invests money in a common enterprise and expects to make a profit form the significant efforts of others.†Given the information we have in the question, I believe that the promissory notes would fall under this test and would definitely be classified as securities.
41-7 As a chief officer of the corporation, Hoodes was granted stock options to purchase stock of the company at a discount. According to the SEC Section 16(b), it states that any profits made by a statutory insider on transactions involving short-swing profits (six month period), belong to the corporation. (pg. 660) Hoodes sold 6,000 shares for $38,350 on July 20, 1982. He was terminated on July 31, 1982 as an officer of the corporation. On August 20, 1982, Hoodes exercised options to purchase 6,000 shares that cost $3.01 per share, which at that time were trading at $4.50 per share. Since Hoodes was an executive officer when he sold the 6,000 Sullair shares, he cannot exercise his option to purchase shares for profit within the short-swing time frame. The profits would belong to Sullair Corporation. He would have had to wait until January 1983 to sell and keep the profit. Although Hoodes was terminated as an officer on July 31, 1982, SEC Section 16 continues the rule that insiders are liable for transactions that occurred within six months of the last transaction engaged in while an insider of the company. (pg. 661)
51-2
I do not think that Ernst and Whinney are liable in this case. They did not engage in actual or constructive fraud. (pg. 806) They had no information that would lead them to know that FAMCO was going to give the audit reports to Hutton, which Hutton used as a basis for purchasing loans from FAMCO. Under the Ultramares doctrine an accountant can