Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, January 30, 2013

District Court Addresses "Unique Question" of Stock Manipulation by Corporate Officer

A federal district court addressed what it called "the unique question" of whether a Rule 10b-5 violation can be committed by corporate officers by a scheme centered around manipulating the restricted nature of the company's shares under Rule 144 in order to gain control over the stock's "float" and enrich themselves at the detriment of the corporation.  Advanced Multilevel Concepts, Inc. v. Bukstel (E.D. Pa. Jan. 25, 2013) (Download Advanced Multilevel Concepts Inc. v. Bukstel[1]).  The court concludes that the Supreme Court's precedents extend to this manipulative scheme. 

The allegations involve a company that went public via a reverse merger and the issuance of over seven million shares of company stock by the CEO to his confederates to dilute the other shareholders' holdings.  The CEO, in turn, counterclaims that the plaintiffs and the former inhouse counsel committed securities fraud when the attorney gained control of a substantial part of the stock's float to make trades that enriched himself.  (Although not at all relevant to the holding, one of the peripheral players in this drama is named Learned Hand!)

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