The business world comprises large and small-scale businesses, all looking for ways to thrive in this dynamic world. While this business environment can sometimes be merciless and cutthroat to consumers, investors, and business owners, a variety of legal protections have been established to prevent big businesses from pushing them out. Securities laws have been established to regulate the purchase, sale, offering, and ownership interest transfer of business operations and entities, while antitrust laws have been passed to target unfair and unlawful business practices favoring certain businesses over others and to avoid issues of monopolies. This paper discusses insider trading and affirmative action. It assesses this from a Christian worldview and ethical principles perspectives and analyses two cases addressing the Securities Act of 1933 and the Sherman Antitrust Act, respectively.
Insider Trading and Affirmative Defense
SEC Rule 10b-5, which has been systematized at 17 C.F.R. § 240.10b-5, is among the most critical rules that target securities fraud that the U.S Securities and Exchange Commission has promulgated in the pursuit of its Securities Exchange Act of 1934 section § 10(b) granted authority (Cornell Law School, n.d. b). This law prohibits any omission or act that results in deceit or fraud connected to the sale or purchase of any security. Notably, 17 C.F.R. § 240.10b-5 applies to all insiders. An insider with regard to SEC Rule 10b-5 Prohibition on Insider Trading implies an officer, a 10% stockholder, and officer and any individual who has inside information due to their relationship with either the company or a director, an officer or the company’s principal stockholder (Cornell Law School, n.d. b). The law has made it unlawful for any individual, either indirectly or directly, by the utilization of any interstate commerce instrumentality or means or any of the facilities of the mails of any securities exchange belonging to the nation, the act of employing any defraud, scheme, or any device to engage in any course, practice or act of business which may operate or operates as deceit or fraud upon any individual and the act of making any untrue statements of a material fact in connection with the sale or purchase of any security (Gelfond et al., 2016).
Under 17 C.F.R. § 240.10b-5-1 (c)(1)(i), a CEO can sell his/her company’s stock exchange without violating 17 CFR § 240.10b-5 insider trading laws by establishing a written plan detailing when they are able to purchase or sell shares in a particular time specified in a scheduled basis (Cornell Law School, n.d. a). Thus, they can have a predetermined amount of shares at a preset time. The sale date, amount, and price of the shares must be set in advance as well as predetermined using metrics or formulas. In this case, the broker and the seller, the CEO, must not access any Material Nonpublic Information (MNPI).
Christian Worldview Perspective
From a Christian worldview perspective, it is unethical for anyone with insider knowledge of a corporation to be able to trade in that corporation’s securities. Integrity, a business ethical principle, requires people inside an organization and organization to demonstrate integrity by ensuring consistency between words and actions that inspire credibility and trust (Chen, 2019). Furthermore, Philippians chapter 4 verse eight urges individuals to practice whatever is noble, lovely, pure, right, and true (Browning, 2009). Therefore, doing this would demonstrate a lack of integrity, being disloyal, and doing what is lawfully wrong. Moreover, ethical principles urge individuals to remain loyal to their organizations. The before-mentioned requires avoiding disclosing any business information that has been learned in privacy and confidence by primarily remaining faithful to suppliers, business partners, clients, and coworkers. Moreover, in chapter three, verse one, Titus reminds individuals to be obedient and loyal to their authorities and rulers and to do good (Browning, 2009). As such, the act of anyone with insider knowledge of a corporation trading in that corporation’s securities would demonstrate a conflict of interest and loyalty under ethical principles, and from a Christian worldview, perspective requires employees to avoid any conflicts of interest and assist in building and protecting their companies’ good reputation.
Securities and Antitrust Laws
Prompt 1
Barnes V. Edison International is one example of a court case that addressed the Securities Act of 1933. The case, which was filed in 2018, was about securities class actions against a Southern California utility company alleging misrepresentations in regard to wildlife risk exposure. The case’s plaintiff was Glen Barnes, while the defendant was the Southern Edison Company (Law360, 2018). The plaintiff filed a federal securities class-related action in the federal district court for the Central District of California in support of various parties who had obtained stock from the Southern California Edison Company together with its parent holding corporation in about two years leading to two wildfires’ outbreak in Southern California in 2018 November and the subsequent California Public Utilities Commission’s initiation of an investigation and search into California Edison Company’s conformance to the applicable regulations and rules in the areas impacted by the fires. As per the complaint, the companies had made false as well as misleading statements concerning their maintenance of wildfire risks and the electric grid (Law360, 2018). The complaint had incorporated an extract from a certain public statement that the companies had made to suggest that the increased wildfire risks resulted from other factors, such as the accompanying financial risks to Edison company and climate change. The court held that Edison international company had not sufficiently committed the claims made by the plaintiff. This court decision is because Edison International had not made statements that would rise to the fraud level defined in the Securities Act of 1933.
Prompt 2
An example of a case that addressed the Sherman Antitrust Act is the Standard Oil Co. of New Jersey V. United States (911). The Standard Oil Company of New Jersey was a holding company held by the Rockefeller family. This family had created such holding in a variety of jurisdictions (Cornell Law School, n.d. c). Generally, this family, together with its holding corporations, controlled almost U. S’s whole petroleum market. To further this family’s control over this petroleum market, the New Jersey Standard Oil Company acquired almost all United States’ oil refining corporations. As a consequence, the United States took to court the Standard Oil Company of New Jersey allegedly for violating Sherman Antitrust Act since it considered its acquisitions undue trade restraint prohibited under this Act. The court ruled that the Standard Oil Company of New Jersey had committed violations of the Sherman Antitrust Act. At the beginning of the case, the court established that the Constitution’s Commerce Clause authorized Congress to enact the Sherman Antitrust Act. It then established that “restraint of trade” incorporated monopolistic behavior. According to the court, the before-mentioned would be considered trade restraint unduly if it resulted in reduced quality, output, and higher prices (Cornell Law School, n.d. c). The court, in this case, tried to balance freedom of contract principles with antitrust protections, which led to the ruling that it could only consider the corporation’s monopolistic actions illegal if they resulted in reduced quality, reduced output, and increased price consequences. Indeed, the Standard Oil of New Jersey’s activities and actions resulted in these three consequences demonstrating a violation.
In conclusion, the main goal of securities and antitrust laws is to offer a playing field with equal opportunities for similar businesses operating in a particular industry while at the same time preventing these businesses from acquiring excess power over their rivals. Various regulations and antitrust laws, including the Securities and Exchange Commission (SEC) Rule 10b-5,), the Securities Act of 1933, and the Sherman Antitrust Act, have been established to ensure smooth operations within the business environment.
References
Browning, W. R. F. (2009). Daniel, book of. In A Dictionary of the Bible (2nd ed.). Oxford University Press. https://www.oxfordreference.com/view/10.1093/acref/9780199543984.001.0001/acref9780199543984-e-485
Chen, Y. (2019). Deontology to judge the ethical business actions: The case of Takata. Open Journal of Business and Management, 7(02), 783. DOI: 10.4236/ojbm.2019.72052.
Cornell Law School (n.d b). 17 CFR § 240.10b5-Employment of manipulative and deceptive devices. https://www.law.cornell.edu/cfr/text/17/240.10b-5
Cornell Law School. (n.d a). 17 CFR § 240.10b5-1 – Trading “on the basis of” material nonpublic information in insider trading cases. https://www.law.cornell.edu/cfr/text/17/240.10b5-1
Cornell Law School. (n.d c). Standard Oil Co. of New Jersey v. United States (911). https://www.law.cornell.edu/wex/standard_oil_co._of_new_jersey_v._united_states_(1911)#:~:text=Primary%20tabs-,Standard%20Oil%20Co.,the%20company%20be%20geographically%20split.
Gelfond, S., Katzman, A. L., Jacobson, Shriver, Harris, F. & Fried (2016, March 24). Corporate Governance : A Guide to Rule 10b5-1 Plans. Havard Law School Forum. https://corpgov.law.harvard.edu/2016/03/24/a-guide-to-rule-10b5-1-plans/
Law360 (2018, November 6). Glen Barnes v. Edison International et al. https://www.law360.com/cases/5bef44a6b0223c4f365cc7e5
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