Scenario Question

ANSWER MUST CITE AND APPLY CASE LAW TO RECEIVE FULL MARKS. RELATE CASEFACTS TO FACTS IN THE QUESTION TO SUPPORT YOUR ANALYSIS AND
CONCLUSION(S)
1. BEST BUDDIES (a long, fun story about friendship, heartache, and bad stuff)
Jim Norton was working at his Edmonton office one morning when his cellphone rang. His close
friend Samuel Clemens was on the line. Clemens, an investment banker with ABC Securities
Inc. (ABC), was calling to tell Norton about an imminent takeover bid for “the spoon.” That was
their code name for Ginsu Cultery Inc., which traded on the Toronto Stock Exchange.
Norton loved to get this sort of call from his childhood buddy. Indeed, he was still euphoric from
pocketing $1.5 million 2 weeks earlier from the timely sale of his shares and options in
Canadian Pacific Ltd. – thanks to another Clemens tip. So, Norton didn’t hesitate to act on the
call.
He left his office and dashed across 4 lanes of Jasper Avenue traffic to get to a phone booth
outside a car wash. This was the best sort of place for Norton to do business quickly with his
broker in Luxembourg. Knowing he was trading on insider information, Norton realized it
wouldn’t be smart to use his own phone. Someone could be monitoring calls to offshore banks.
Because few Ginsu Cutlery shares changed hands daily, Norton told his broker at Banque
Briquette, Herman Smith, to “subtly” buy as many as he could without drawing attention. But the
broker didn’t follow instructions. Back at his office, Norton flinched in horror as he saw a trade
flash on his computer screen that was about as subtle as a siren. As far as Norton could see,
his broker had executed probably the largest block trade in the history of Ginsu Cutlery.
“The spoon” turned out to be no fun. The botched trade sounded alarm bells at Canadian
securities dealers and the Alberta Securities Commission (ASC). It triggered a massive internal
investigation into suspiciously well-timed trading involving clients of ABC.
Norton began investing in the stock market in 2021, basing his decisions mainly on tips from his
former school chum, Clemens and made nearly $1,150,000. This success drove home 2 things
for Norton. First, the tips divulged by his friend were accurate and lucrative. Second, he needed
to cover his own tracks. So, when he made trades, Norton split the purchases among his
offshore accounts to avoid regulators’ attention. His list of big plays ran to 10: newsprint maker
Laudon, Canadian Dish Communications, Liquid Life Sciences, Prudential Apples, Winner
Rubies, Duffy Communications, Apple Forest Products, Monfat Communications, Ginsu Cutlery,
and Canadian Pacific.
Clemens tipped Norton on all 10 stocks, but rarely gave him specifics. He’d share a stock
symbol, or part of a name. Clemens sometimes hinted at the profitability of a deal by suggesting
that Norton “load up” or “bet the farm.” The discussions usually took place in person rather than
on the phone.
Norton made a $1.3 million bet on Liquid Life Sciences. He got this tip after dining with
Clemens. The day after the dinner, Norton accumulated $649,000 worth of Liquid Life shares.
He bought another $580,000, 8 days later. When Jekel Corp. announced it was buying Liquid
Life at $70 a share Norton made more than $500,000.
Until the Ginsu Cutlery incident, Norton’s richly rewarding trades had gone undetected. He
made sure the secret information kept flowing by pampering Clemens with expensive dinners,
trips and occasional “envelopes of cash” containing between $5,000 and $10,000.
ABC discovered that Norton was the owner of an offshore account in the Bahamas, and that his
trades focused on the stocks of ABC’s clients. Clemens was told he was being suspended
without pay. After he refused to co-operate with the investigation his boss escorted him to the
elevator. Waiting below in the lobby and the garage were private investigators hired by the bank
to tail Clemens. They could hardly keep up with him later that evening as he sped away in his
BMW.
On June 14, Clemens was fired. “He has not answered any of our questions,” an ABC Bank
spokesman said at the time. The brokerage also froze Clemens’s accounts.
Clemens pleaded not guilty to 10 counts of illegal insider trading and 10 counts of tipping Norton
about corporate deals.
Discuss legal issues about Clemens (i) the probable court decision on his trading behaviour [35
marks] and (ii) his whether his dismissal from ABC Securities was lawful [15 marks]. Provide
reasons for your arguments.
ANSWER MUST CITE AND APPLY CASE LAW TO RECEIVE FULL MARKS. RELATE CASE
FACTS TO FACTS IN THE QUESTION TO SUPPORT YOUR ANALYSIS AND
CONCLUSION(S)
1. BEST BUDDIES (a long, fun story about friendship, heartache, and bad stuff)
Jim Norton was working at his Edmonton office one morning when his cellphone rang. His close
friend Samuel Clemens was on the line. Clemens, an investment banker with ABC Securities
Inc. (ABC), was calling to tell Norton about an imminent takeover bid for “the spoon.” That was
their code name for Ginsu Cultery Inc., which traded on the Toronto Stock Exchange.
Norton loved to get this sort of call from his childhood buddy. Indeed, he was still euphoric from
pocketing $1.5 million 2 weeks earlier from the timely sale of his shares and options in
Canadian Pacific Ltd. – thanks to another Clemens tip. So, Norton didn’t hesitate to act on the
call.
He left his office and dashed across 4 lanes of Jasper Avenue traffic to get to a phone booth
outside a car wash. This was the best sort of place for Norton to do business quickly with his
broker in Luxembourg. Knowing he was trading on insider information, Norton realized it
wouldn’t be smart to use his own phone. Someone could be monitoring calls to offshore banks.
Because few Ginsu Cutlery shares changed hands daily, Norton told his broker at Banque
Briquette, Herman Smith, to “subtly” buy as many as he could without drawing attention. But the
broker didn’t follow instructions. Back at his office, Norton flinched in horror as he saw a trade
flash on his computer screen that was about as subtle as a siren. As far as Norton could see,
his broker had executed probably the largest block trade in the history of Ginsu Cutlery.
“The spoon” turned out to be no fun. The botched trade sounded alarm bells at Canadian
securities dealers and the Alberta Securities Commission (ASC). It triggered a massive internal
investigation into suspiciously well-timed trading involving clients of ABC.
Norton began investing in the stock market in 2021, basing his decisions mainly on tips from his
former school chum, Clemens and made nearly $1,150,000. This success drove home 2 things
for Norton. First, the tips divulged by his friend were accurate and lucrative. Second, he needed
to cover his own tracks. So, when he made trades, Norton split the purchases among his
offshore accounts to avoid regulators’ attention. His list of big plays ran to 10: newsprint maker
Laudon, Canadian Dish Communications, Liquid Life Sciences, Prudential Apples, Winner
Rubies, Duffy Communications, Apple Forest Products, Monfat Communications, Ginsu Cutlery,
and Canadian Pacific.
Clemens tipped Norton on all 10 stocks, but rarely gave him specifics. He’d share a stock
symbol, or part of a name. Clemens sometimes hinted at the profitability of a deal by suggesting
that Norton “load up” or “bet the farm.” The discussions usually took place in person rather than
on the phone.
Norton made a $1.3 million bet on Liquid Life Sciences. He got this tip after dining with
Clemens. The day after the dinner, Norton accumulated $649,000 worth of Liquid Life shares.
He bought another $580,000, 8 days later. When Jekel Corp. announced it was buying Liquid
Life at $70 a share Norton made more than $500,000.
Until the Ginsu Cutlery incident, Norton’s richly rewarding trades had gone undetected. He
made sure the secret information kept flowing by pampering Clemens with expensive dinners,
trips and occasional “envelopes of cash” containing between $5,000 and $10,000.
ABC discovered that Norton was the owner of an offshore account in the Bahamas, and that his
trades focused on the stocks of ABC’s clients. Clemens was told he was being suspended
without pay. After he refused to co-operate with the investigation his boss escorted him to the
elevator. Waiting below in the lobby and the garage were private investigators hired by the bank
to tail Clemens. They could hardly keep up with him later that evening as he sped away in his
BMW.
On June 14, Clemens was fired. “He has not answered any of our questions,” an ABC Bank
spokesman said at the time. The brokerage also froze Clemens’s accounts.
Clemens pleaded not guilty to 10 counts of illegal insider trading and 10 counts of tipping Norton
about corporate deals.
Discuss legal issues about Clemens (i) the probable court decision on his trading behaviour [35
marks] and (ii) his whether his dismissal from ABC Securities was lawful [15 marks]. Provide
reasons for your arguments.
ANSWER QUESTIONS AS INSTRUCTED.
1. Length: approx. 1000 – 1500 words.
2. Use FILAC or Case Analysis format.
3. Use legal reasoning and case citations based on the common law. Do not research
statute law, but you may reference statute law to the extent it is mentioned in the
scenario and in our case studies.
4. Limit sources to those applicable from among the 16 reference cases presented in the
course. More than one case may apply. Use legal citation, not APA. Do not cite the
scenarios.