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Law School Case Brief

Speed v. Transamerica Corp. - 99 F. Supp. 808 (D. Del. 1951)

Rule:

Under S.E.C. Rule X-10B-5, it is unlawful for an insider, such as a majority stockholder, to purchase the stock of minority stockholders without disclosing material facts affecting the value of the stock, known to the majority stockholder by virtue of his inside position but not known to the selling minority stockholders, which information would have affected the judgment of the sellers. 

Facts:

Minority shareholders of tobacco company, brought an action against Transamerica Corp., a majority shareholder, for fraud and violation of Rule X-10B-5 under the Securities Exchange Act of 1934 (Act) for failure to disclose true value of stock prior to sale, which resulted in significant losses to the minority stockholders.

Issue:

Did Transamerica Corp. violate Rule X-10B-5 through fraud and misrepresentation?

Answer:

Yes

Conclusion:

The Court entered judgment in favor of the minority stockholders because Transamerica Corp.'s failure to disclose all material facts likely to influence the minority stockholders’ decision to accept or decline offer, failure to disclose increased earnings and ultimate purpose for acquiring shares, representations that offer was fair, and conditional deadline and amount of shares purchased, constituted a scheme to defraud in violation of the Act.

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