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Ask Maverick Your Own Question
Maverick, Attorney
Category: Business Law
Satisfied Customers: 6391
Experience:  20 years of professional experience
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I work publicly traded firm within the mining/manufacturing

Customer Question

I work for a publicly traded firm within the mining/manufacturing space. My company is being acquired by the #2 player in the industry.
My concern is this: About 3 weeks ago I was asked to provide a forward-looking financial statements that include a quantitative study of copper prices that the firm will use as a benchmark to assess what industry dynamics look like for next year. The company also plans to use this prediction as a guiding mechanism to develop an anti-merger strategy.
In other words, publicly the company is telling investors that it expects the merger to be completed, but privately it is developing a significant action plan against the merger and the proposed acquirer.
My question is: Is this legal?
Submitted: 1 year ago.
Category: Business Law
Expert:  Maverick replied 1 year ago.

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This may constitute fraud under Section 10(b) of the Securities Exchange Act of 1934. Section 10(b) gives shareholders a private right of action to seek damages for securities fraud. These cases frequently allege that a company and key figures made withheld information that, when revealed to the market, caused a significant drop in the company's stock price. Section 10(b) suits are commonly pursued as class actions to allow all similarly affected shareholders to recover for the resulting loss of value.

Executives and board members can also be subject to "control-person liability" under Section 20(a) of the Act even if they did not themselves have direct knowledge of the fraud. Insider trading is another issue that coud arise here. Allegations that a company insider used nonpublic information to sell or purchase stock for their own benefit or to tip off friends can also be the subject of civil litigation under Section 20A brought by investors who purchased the same stock.

What is not clear is if the intent of counter action plan is to drive up the merger price which would benefit your company's shareholders as opposed to harm them if the merger is ultimately thawarted. So there is an issue of intent. I woud suggest that you speak privately with a SEC lawyer on this. There are many that may talk to you for free such as this one. I do not know anyhting about this firm other than what is shown on their web page. We are not permitted to refer law firms to you so this one is just given to you as a way of example. You are free to talk to them or any other of your choice.

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Customer: replied 1 year ago.
Thank you for your concise reply
Expert:  Maverick replied 1 year ago.

Sure. PLease remember to assign a feedback rating so JA will compensate me for my time.