Essay Example on Paul Violates Federal Security Laws: Disclosure Requirements Not Met

Introduction

Paul violated federal security laws. The issue under the case is that the seller did not disclose the full information of selling the shares. The sale of securities requires the provision of truthful information to the investors to enable them to make critical decisions regarding their investment (US Securities and Exchange Commission 1). Therefore, failure to provide the investor with all information results in a violation of federal security laws.

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Federal security laws provide the requirements to the companies that want to offer and sell their securities. The law states that the company must file a registration statement that shows its information, securities offered as well as offering (US Securities and Exchange Commission 1). Before sales can be made to the investors, it is a must for the registration statement to be approved as effective. A registration statement has two parts. The first one is the document known as the prospectus that must be provided to everyone who wants to buy securities. The company must describe the critical information concerning the financial condition, business operation, and management among others. Audited financial statements must also be included in the prospectus. The second part contains other information and exhibits the company should file with the Securities Exchange Commission (SEC) (US Securities and Exchange Commission 1). The law also requires the companies to report periodically to the SEC concerning public traded securities.

The president of Aoko, Paul was required to file a registration statement showing all the information concerning the business when offering shares to the potential investors. However, he did not do so, and this resulted in a violation of federal security laws. Due to the hard economic times Aoko Corporation was not doing well. After Sally, PinkCo president approached Paul, the latter agreed to sell Aoko's share at $100 per share that was trading at $50 per share by then and both companies merge. However, Paul sold 5000 shares to the broker at $50 per share and did not disclose that information to Sally that means he did not file the registration statement. Later Aoko's president presented a merger proposal to the board of directors for approval.

It is evident that Paul did not act as per federal security laws that require disclosure of all the information about the company during the sale of securities. He did not provide truthful information to PinkCo's president as an investor because he sold some shares to the broker. The policy requires the provision of all information about the company to the investor to help in making crucial investment decisions (US Securities and Exchange Commission 1).

Did Paul breach any duties to Aoko and or its shareholders?

Paul breached duties to Aoko and shareholders. Paul had a responsibility of protecting the property of Aoko. However, he did not do so as he sold the property while concealing some of the information.

According to the law, any individual who has the power of controlling the property of a different person has a fiduciary duty (Miller 987). Such people include trustees, agents, directors, promoters, and guardians among others. As long as there is an existence of the power of control, it has the risk of abuse or exploitation as people vested with power may use it in their favor (Stafford and Stuart 124). The fiduciary duty is imposed on the people who wield power because they have the mandate to make decisions and influence the rights of the shareholders. The authority is grounded on the democratic principle where activities of the company are anchored.

As stated earlier, the law imposes a fiduciary duty to a person who has control over the property of another person (Miller 987). Paul had a responsibility of protecting Aoko's property as the president. However, he sold some of the shares to the broker without informing the board of directors or shareholders, and this was done in his favor. The directors and shareholders had a right to have all the information concerning the sale of the shares and the merger between PinkCo and Aoko. They should be involved in the decision-making process to ensure there is transparency and approve the idea which constitutes the democracy.

There was a breach of fiduciary duty. Paul was entrusted with the property of Aoko but sold some of the shares without involving the stakeholders. It shows that he was not honest in the dealing bearing in mind he was bestowed with authority to protect the property. The policy requires involving the stakeholders while selling securities (Stafford and Stuart 126). Fiduciary duty ought to be respected by those vested with powers to protect the interest of others.

Did the board breach any duty to Aoko and or its shareholders?

The board breached a fiduciary duty to Aoko and its shareholders. Directors are among the people bestowed with powers of protecting other people's properties (Miller 988). When the merger proposal was presented, they did not carry out a valuation study of the company to ensure all the information was provided.

The law provides that a director of the company has the mandate of safe custody of other's properties (Stafford and Stuart 127). The director should not abuse power for self-gain. Thus, directors can exercise control over the property of the company to ensure it is safe. Failure to do so results in a breach of the duty to the entity or shareholders.

The board of directors approved the merger proposal without ensuring that all the financial information provided is correct. Paul had already sold shares worth $5000 without involving anyone. The board had a responsibility of revealing such information since it was done in favor of Paul rather than the company and shareholders.

Conclusion

In conclusion, the board of directors did not protect the interest of the company and its shareholders. They failed to evaluate the company to ensure that no shares were sold without the approval of the parties involved. According to the policy, all the information about the sale of shares ought to be provided to the stakeholders (Miller 989). It ensures transparency and protection of the property of the company and its shareholders.

Works Cited

Miller, Paul. "Justifying Fiduciary Duties." McGill Law Journal/Revue de droit de McGill 58.4 (2013): 969-1023. Retrieved from: https://www.erudit.org/en/journals/mlj/2013-v58-n4-mlj0866/1019051ar.pdf

Stafford, Andrew, and Stuart Ritchie. Fiduciary Duties: Directors and Employees. , 2015. Print.

US Securities and Exchange Commission. The laws that govern the securities industry, 2013. Retrieved from: https://www.sec.gov/answers/about-lawsshtml.html