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Business Organizations Keyed to Allen
Dirks v. SEC
Citation:
463 U.S. 646 (1983).Facts
In 1973, Dirks was an investment analyst specializing in insurance company securities to institutional investors. On March 6, Ronald Secrist, a former officer of Equity Funding of America, provided Dirks with information alleging that Equity Funding was overstating its assets. Dirks visited Equity Funding’s headquarters in Los Angeles to investigate these claims. Senior management denied any wrongdoing, but some employees corroborated the charges of fraud. Dirks company did not own or trade Equity Funding stock, however, Dirks openly discussed the information he had obtained with numerous clients and investors. As a result, some sold their holdings in Equity Funding including one liquidation of more than $16 million. Additionally, Dirks urged William Blundell of the Wall Street Journal to write a story on the fraud allegations. Blundell declined.
During Dirk’s 2-week investigation, the price of Equity Funding stock fell from $26 per share to $15 per share leading to the New York Stock Exchange to halt trading on March 27. Thereafter, California insurance authorities impounded Equity Funding’s records and uncovered evidence of fraud leading to the SEC filing a complaint and a front-page story in the Wall Street Journal.
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