Dracca’s Senior Vice President of Sales,

Dracca’s Senior Vice President of Sales,

Subject: Business    / Management   
Question
Dracca’s Senior Vice President of Sales, Bob Marley, and one of his sales representatives, Bill Farian, were on a conference call and learned that Dracca’s new line of high chairs was going to be recalled the next day. During the call, Farian stated, “This won’t be good for stock prices.” After the call ended, Marley and Farian immediately contacted their brokers and sold a large portion of their interests in Dracca shares.

Very Good Vinyls (VGV) was a plastic company that periodically purchased used equipment from Dracca’s plant where the new line of high chairs was produced. In 2009, VGV purchased a 750-ton injection-molding machine from Dracca for $150,000. Because of the good relationship between VGV and Dracca, Dracca extended credit to VGV for the equipment. Last month, VGV sold the injection-molding machine to a small start-up company for $1,500 two days before filing bankruptcy. VGV still owes Dracca $100,000 for the machine.

Dracca sold much of its feeding equipment line to a retailer known as Baby Boutique (BB). BB was a partnership formed between friends Beth Brown, Silvia Gray, and Valerie White. BB was behind on its payments and owed Dracca over $500,000 for delivered feeding equipment. Eventually, Dracca sued BB and obtained a judgment for $500,000 in Dracca’s favor.

The board of directors for Dracca decided to seek enforcement of a judgment the company obtained against Silvia Gray, acting on a tip that Ms. Gray had just inherited a large sum of money and that the other partners had no personal assets. As it turned out, Ms. Gray had sufficiently dispersed her inheritance money and did not have the funds to pay the judgment. Dracca incurred substantial attorney fees in attempting to collect its judgment from BB.

In light of these facts, please respond to the following questions using course material and credible outside research to support your findings. Please submit findings in a three- to five-page paper using APA format.

· Did Marley and Farian commit any securities violations? Please explain the reasons for your conclusion. What factors might the court consider in conducting such an analysis? Would the analysis be different for Marley than Farian? Why or why not?

 

•Presuming Farian’s statement “This won’t be good for stock prices” could be considered disclosure of plan to trade on the nonpublic information, would Farian’s sale of stock be a section 10(b) violation? Would it be ethical? Why or why not?

 

•Discuss the legal and ethical issues associated with VGV’s action in selling the molding machine before filing bankruptcy. What recourse does Dracca have in recovering the monies still owed on the equipment?

•Can Dracca seek to recover from Silvia Gray individually on the judgment for BB partnership? Why or why not? Use legal principles from the readings to support your findings.

•Using the Business Judgment Rule, did the board of directors fulfill its duty of care to shareholders in suing Silvia Gray individually for the BB judgment? Why or why not?

•What actions (internal and external) do you recommend to Dracca to remedy the ethical and legal considerations of this scenario?

Submit your 3- to 5-page in APA format with references