Hypothetical FINRA – Essaylink

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Referral Date: January 7, 2017
Security: Acme, Corp. (Ticker: ACME)
Referral:
On October 31, 2016, Acme, Corp (“Acme”) announced its earnings news for the quarter-ended September 30, 2016 (the “Announcement”). The news was announced before the markets opened. The closing price of Acme on the previous trading day, October 28, 2016, was $15.24 per share. The closing price of Acme on October 31, 2016, was $23.14 per share. Acme had announced on September 30, 2016 that it would disclose its earnings numbers by October 31, 2016.
Acme is represented in corporate matters by the “Law Firm, LLP.” “The Accounting Firm, LLP,” audits and reviews Acme’s financial statements. “The Investment Bank Corp.” facilitates capital raises for Acme.
FINRA reviewed trading in advance of the Announcement and discovered the following:
1. John Doe, age 47, bought 20,000 shares of Acme on October 20, 2016. Doe opened his brokerage account in 2010 at E*Trade Financial Corp. Based on FINRA’s review of the trading records, has bought or sold Acme stock ahead of each of the previous eight earnings announcements.
2. Jane Smith, age 25, bought 20,000 call options at a strike price of $17.00 per share. The exercise date of the call options is October 15, 2016. The call options expire on November 15, 2016. This means that Smith has the right to buy Acme stock at $17.00 per share (regardless of the actual stock price) between October 15 and November 15, 2016. Smith’s brokerage account is held at Scottrade, Inc. Based on a review of trading records, Smith had not previously purchased Acme’s stock.
Questions:
1. What SEC statutory sections and rules might be impacted by this conduct?
2. What statutory sections might be subject to DOJ enforcement?
3. What documents, if any, would you request?
a. Generate at least subpoenas for documents:
i. To whom would you send each subpoena?
ii. List the documents you want (and explain why).
4. What questions would you ask, and of whom?
a. Generate at least two outlines containing questions for people from whom you want to gather information.

 

 

 

 

 

 

 

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