Forms of Business Organizations - 21021

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Forms of Business Organizations


A Fortune 500 CFO admits to having deliberately treated $4 billion in operating expenses as
assets, thereby allowing the corporation to show profits instead of losses. The auditor never detected this. The corporation’s stock drops 95 percent and bond covenants related to billions in debt are breached. At its peak price last year, the CFO sold stock (acquired through options) for $15 million, generating a $10 million gain.

  • A. Why  might     the corporation have to file for bankruptcy protection?
  • b. What      provision(s) of the securities law will probably be the basis for a
         class-action lawsuit by the stockholders?
  • c. Why will      the 1995 Act probably not stop a class-action lawsuit from proceeding to     the discovery phase?
  • d. Why will the CFO be subject to criminal (as well as civil) securities sanctions?
  • E .Will the    SEC likely ever allow the CFO to be an officer or director of a publicly
         traded corporation in the future?
  • f. Will the     SEC allow the CFO to keep the $10 million gain on the stock? 
  • g. What kind  of civil penalties could the SEC impose on the CFO?

Your responses should be well-rounded and analytical, and should not just provide a conclusion or an opinion without explaining the reason for the choice. For full credit, you need to use the material from the week's lectures, text, and/or discussions when responding to the questions. It is important that you incorporate the question into your response (i.e., restate the question in your introduction) and explain the legal principle(s) or concept(s) from the text that underlies your judgment. For each question (and each component if there are 
multiple sections of one question),



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Forms of Busine...