CARDWARE Inc. plans to take over First Class Purses & Accessories (FCPA) in an effort to coordinate elegant CARDWARE professional attire with items from FCPA that will complement CARDWARE’s fashion designs. Darla, owner of Darla’s Dummies, a mannequin manufacturer whom CARDWARE had used on numerous occasions happened to be delivering mannequins to CARDWARE’s principal place of business in Silkadonia. As she was bringing the last of the dummies down the hall to the room where the dummies are dressed, she paused to listen to a conversation coming from one of the open doors of the hallway she was using. Realizing that a profit could be made from FCPA’s stock, Darla called her broker and indicated that she wanted to purchase 50 % of the outstanding stock that was available for FCPA. Darla bought 2,000 shares of stock at $30 a share. CARDWARE offered $50 a share and ultimately ended up paying $65 per share for FCPA stock. Darla was no dummy, as she made a $70,000 profit on her stock purchase. The Securities and Exchange Commission (SEC) filed a suit in a federal district court against Darla and others for alleged violations of, among other things, SEC Rule 10b-5. [SEC v. Falbo 14 F.Supp.2d 508 (S.D.N.Y. 1998)] Discuss the following, justifying your response using information from your Reading Under what theory might Darla be liable?Do the circumstances of this case meet all of the requirements for liability under that theory? Explain.Examine the SEC Rule 10b-5.Discuss whether or not Darla was liable under the misappropriation theory. Just do response each posted # 1 to 3 down below only Posted 1 “Misappropriation occurs when a non-insider steals material company information and uses that information for his or her personal benefit” (LegalFlip, 2019, para. 1). Darla would be liable under this theory as she took company information she overheard and used that for her own personal gain. The circumstances do in fact meet all of the requirements for liability under misappropriation because had she not overheard this conversation, she would not have gone and bought the amount of stock she did, if any at all. She clearly listened to a conversation that she was no a part of, unknowingly to the company employees. Had someone told her this information directly, they could be liable as well but in this specific scenario, Darla acted on her own and would be held liable in the lawsuit. References LegalFlip. (2019). Insider trading vs. misappropriation. Retrieved from http://www.legalflip.com/Article.aspx?id=79&pageid... Posted 2 Darla may be liable under the misappropriation theory. Darla received insider information she ultimately benefitted from. I do believe the circumstances of this case meet the requirements for liability. Had she not overheard this conversation, she would not have bought all that stock. It is taking advantage of the company as well as its other shareholders. Sec Rule 10b-5 states that persons with confidential financial information have a duty to keep it secure. In this case, whomever was having the conversation regarding the stock at Cardware should have closed the door at a bare minimum. The open door allowed Darla to be tipped off and buy stock for a profit. As stated above, Darla is liable under the misappropriation theory, in my opinion, however, it would be difficult to prove. If she did not mention this information to anyone else, it could be seen as purely circumstantial. Is she guilty of misappropriation, yes. Is she going to be prosecuted? maybe, but it will take alot to prove her guilt if she does not speak. Posted 3 Hello professor and class, Darla might be liable under the theory that she violated the SEC Rule 10b-5 by listening to a conversation that was not for her ears and running to do what she did. This would still be looked at as insider trading in the court of law. Darla and some others may not think so and she saw a way to make a profit and she did make a large profit however, she stole that information. (Miller, RL 2013) Yes it does meet most, if not all of the requirements for liability under the theory. The act states this violation occurs when persons buy or sell securities on the basis of inside information that is not available to the public. Darla overheard that information that she used to purchase her 2000 shares of stock. (Miller, 2013) The Securities Exchange Act of 1934 gave the Securities and Exchange Commission SEC broad authority to make rules to eliminate fraud in securities trading. One of the rules that the SEC enacted is Rule 10b-5, which prohibits fraud, misrepresentation, and deceit in the sale and purchase of securities. (Brenda H 2013) One of the unintended effects of SEC Rule 10b-5 was to deter the disclosure of forward-looking information.