Instructions

Select two of the three scenarios. Support your responses with appropriate cases, laws and other relevant examples.

Scenario 1:Securities

In 2012, after working at First National Bank for six years, Billy Bryant helped establish Breakstone Capital Corporation (BCC), a venture capital firm that invested in the communications and technology sectors. BCC went public in 2014, and Bryant served as its CEO and chairman of the board. Various documents filed with the SEC stated that Bryant earned a BBA degree in accounting from Northwest University. In fact, Bryant attended Northwest for four years, but he did not graduate. After being pressured by a journalist, Bryant disclosed the misrepresentation to the BCC board. The same day, the company issued a press release correcting the statement.

The press responded negatively to "another CEO that lied about his resume" and speculated about "what else might not be right." On the day the press release was issued, BCC's stock price dropped from $32.45 per share to $16.22, but it fully recovered within a month.

Shareholders sued, alleging that the misrepresentation violated section 11 of the 1933 Act, section 10(b) of the 1934 Act and Rule 10b-5.

Was Bryant's lie about having a college degree material?

Would your answer be the same if a CEO lied about having helped to take a company through an initial public offering and subsequent acquisition by another company?

Would a reasonable member of the BCC board be comfortable keeping Bryant as CEO once they learned that he lied about having a college degree?

Scenario 2: Securities

Pampered Pooches, Inc. proposes a merger with Sit Means Sit, Inc. (SMS). SMS will obtain the approval of its shareholders; and then, by operation of law, SMS shares will become shares of the surviving corporation, Pampered Pooches, Inc.

Assume that prior to the merger Paulie Smith owned 25% of SMS stock that he purchased three years before in a private placement. Smith will only own 2% of the Pampered Pooches shares and will not be an officer or director of the merged company.

Is it necessary to register the Pampered Pooches shares?

May Smith freely resell his Pampered Pooches shares?

Would it matter whether the shares were registered in connection with the merger?

Scenario 3: Shareholder Rights

Katy Kirkland, a former employee of the Sand Dune Resorts, Inc., owned 500 shares of stock (10%) in the company. Kirkland was terminated after five years of employment at Sand Dunes; however, she became part owner of Holiday Isles, Inc., a competitor of Sand Dunes. When Sand Dunes made Kirkland an offer to purchase her stocks, she requested access to Sand Dunes' corporate books to determine the value of her 500 shares of stock. Sand Dunes refused on the basis that Kirkland was a competitor.

Does Kirkland have a right to view the books? Why or why not?

Propose a solution to the situation.