JourneyCo Is a Publicly Held Corporation Subject to the Provisions

Essay

JourneyCo is a publicly held corporation subject to the provisions of the Exchange Act. Brian is the company's chief financial officer, and Nancy is on the board of directors. The company has invested several million dollars on a 10-year research project to produce an alternate fuel product that will result in substantially lower pollution. As of the end of the last year, Brian and Nancy each owned 10,000 shares of JourneyCo's stock. This year, they traded as follows:1. January 1-Brian purchases 1,000 shares at $10/share. Nancy purchases 5,000 shares at $10/share.
2. March 1-Nancy purchases 5,000 additional shares at $10/share.
3. May 1-Nancy purchases 1,000 additional shares at $20/share. Brian sells 1,000 shares at $20/share.
4. November 1-Nancy sells all of his shares of JourneyCo at $25/share.
5. December 1-JourneyCo stock drops to $2/share.Assume further that on October 30, both Brian and Nancy learned in advance of public knowledge that the Environmental Protection Agency (EPA) failed to give regulatory approval to JourneyCo's new alternative fuel and that improvements to the formula would likely take many more years of research and testing. After the public disclosure by the EPA of the adverse decision on November 30, JourneyCo's stock price dropped precipitously. How will these events be analyzed in terms of Section 16 and Rule 10b-5 liability?