business law about securities laws and corporations laws

| December 5, 2015

business law about securities laws and corporations laws

Please read the following hypothetical and answer the two questions below:

You are the CEO of Norne, a high-flying, fast-paced bio-technology company. You are a publically traded company. Norne is about to launch a new drug that many believe will cure virtually all forms of cancer. Norne has virtually no earnings (or for that matter, revenues) at the moment. Yet the stock price has gone sky-high and is currently trading at $80 a share and Norne enjoys a market capitalization (or “market cap”) of $10 billion.

A next round of FDA testing is expected and if approval is granted, Norne will be able to start doing selective distribution of this new “miracle drug”. Despite all this excitement, you and a handful of other executives, know from your internal testing that the drug is not performing and in fact in a large number of cases is accelerating the spread of cancer in patients, causing more harm than good. With full knowledge of this, you continue to speak very optimistically about the drug and make absolutely no mention of the variety of problems arising out of the internal testing. Indeed, a recent press release from Norne stated that: “Norne is at the cusp of curing cancer forever. Our new drug will save tens of millions of lives and of course add an enormous amount of shareholder value. We are so proud of Norne and our brilliant employees who will make the world a better place.”

The day after the press release you said the following to your members of the Board of Directors: “Look, things are not as rosy as we are saying. Our testing is not there yet, but we will get there eventually. Norne will cure cancer!” Later that same day you told your CFO the following: “I don’t care what we have to do, we need to get that stock price past $100. All my stock options vest in 3 months and we need to hold out until then, so I can make my one billion dollars, got it?” “Frankly, I don’t give a rat’s rear end, what happens after that!”

The Norne 10-K was still in draft form, but was soon to finalized in the next week. The same language in the recent press release also appeared in the draft of the soon to be released 10-K report.

PLEASE ANSWER BOTH OF THESE 2 QUESTIONS

1. Under United States securities laws, what claims might be brought by Norne shareholders against the CEO, CFO and Board of Directors of Norne?
2. Under United States corporations laws, what duties or obligations did the CEO, CFO and Board of Directors violate?

Elaborate. Be specific and wherever feasible, try to argue both sides. I strongly suggest you use an “IRAC formula” for question #1. Question #2 can be written in short answer, memo, or bullet-point fashion.

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