Security Exchange Act of 1934

Security Exchange Act of 1934

Dakota Gasworks would be required to register their securities with SEC. according to Security Act of 1934 all securities offered in United States must be registered with SEC or else qualify for an exception from registration requirement. Dakota Gasworks does not qualify for this exception. Those exempted are private offering to a limited number of persons, intrastate offering, limited size offering, and securities of federal governments, state, and municipal (Miller, and Jentz, 2007). Under this rule therefore, Dakota would be required to describe the companies’ properties and business, information about the management of the company, security to be offered for sale, and certified financial statement.


By disclosing the information that was not in public domain, Emerson violated Section 10(b) of the Security Exchange Act of 1934 and SEC Rule 10b-5. The intent, which Reliant Electric Company was planning to takeover Dakota Gasworks, Inc was not in the public domain under therefore, fell under insider trading. Wallace took the advantage of this forehand information to buy Reliant Stock and sold it at very high profit. The major aim of section 10(b) and SEC Rule 10b-5 is to prevent those with the advantage of accessing corporate information that it is not in the public domain in order to have a trading advantage (Miller, and Jentz, 2009). SEC Rule 10b-5 prohibits “the commission of fraud in connection with the purchase or sale of any security” (Cross 2007: 651). Under the 1934 Security Exchange Act, the information that Emerson released is considered as insider information which lenders officers or directors of a corporation liable for “taking advantage of such information in their personal transaction” knowing to well that it is not in the public domain(Cross, 2007:651).


There are two theories under which Wallace can be held liable for violating Section 10(b) of the 1934 act and SEC Rule 10b-5- misappropriation and the tipper/ tippee theory(Cross, 2007). The tipper/ tippee theory holds that “anyone who acquires inside information as a result of a corporate insider’s breach of his or her fiduciary duty can be liable under SEC Rule 10b-5” (Cross,2007: 654). The strength of this theory in this case is that it extends liability even to those who receive tips from insiders like Wallace did and even to any other person that Wallace could have tipped to. As cross (2007) observes, the requirement under this theory is that the “insider information must be obtained as a result of someone’s breach of a fiduciary to the corporation whose shares are traded” (654). Nonetheless, under this theory, Wallace could only be liable if  a) there is a breach of duty  to disclose inside information, b) there was corruption, and c)  Wallace was aware of this breach and went ahead to benefit from it.

The misappropriation argues that Wallace should be held liable if it is established that he wrongly obtained the information and went ahead to trade on this information (cross, 2007). This shall be considered as stealing information rightly belonging to another person. Both of this theory shows a debut from tradition insider trading where it was considered that only insiders could be held liable for insider trading. Section 10(b) of the 1934 act and SEC Rule 10b-5 extend liability to outsiders who obtain corporate information indirectly. 


The Sarbanes-Oxley Act of 2002, the accuracy of financial statements as presented to SEC is confirmed is certified both by the CEO and CFO. The Act requires the CEO and CFO to approve the correctness and completeness in all material respects of their financial report. The Act places a hefty fine to CEO and CFO who fall short of this responsibility (Miller, and Jentz, 2009). Coming out of the financial scandals the ACT also emphasizes the role of independent auditors.


Cross, F. (6th Edn) (2007). West’s legal environment of business: text and cases: ethical, regulatory, international, and e-commerce issues. New York: Cengage Learning.

Miller, R.L & Jentz, G.A (2nd Edn) (2009). Fundamentals of business law: Excerpted cases. New York: Cengage Learning

Miller, R.L & Jentz, G.A. (8th Edn) (2007). Business law today: The essentials. New York: Cengage Learning.