NOTES:

SEC Crimes (Felonys):

1.    Inside Information
        A.   Must Possess Information not Available to the Public at large
        B.    Must Act on that Information
        C.    Must Profit from Act

2.    Securities Fraud
        A.    Intent to Defraud
        B.    Non-Disclosure
                - 13d, “parking” funds, offshore accounts

A.    BAGGING THE ELEPHANT

Karl tells Bud about the lawsuit BLUE STAR is involved in; Insider Information?

          Info?  Yes!

          Act?  Yes!  He told a broker about it!!

But Intent to Profit?  No!

          What if Karl did buy the stock himself?  NO!

          The SEC allows individuals to buy their own company’s stock ie to “bet” on themselves.

Initially Bud Fox wants to “bag the Elelphant” ie get Gordon Gekko as a client.

He tells Gekko about TERAFLY.  Gekko calls it a “Dog with Fleas”.

Bud tells Gekko about BLUE STAR; inside information?

          Info?  Yes!

          Act?  Yes!  He told Gekko about it!

          Intent?  Yes!

How about Gekko?  NOT YET!

B.      TELDAR PAPER (TLD)

Bud hears Gekko’s intent to buy control of TELDAR PAPER

Gekko says he wants NEGATIVE CONTROL:  30-35% of the company at 18 1/2

          in order to block deals/takeovers/decisions

But when he finds out the President of the Company is out making speeches when the company is          losing $60 million a quarter,

He tells Ollie to file a 13d for total control, will pay up to 22 for the stock (up 20%);

then Bud goes to his office and punches it up on the machine--does he order it?

          If yes, INFO? ACTION? PROFIT?

GUILTY!

C.      BLUE STAR (BST)

Gekko calls and orders 20,000 shares of BLUE STAR at 15, no more than 15 1/8.

          That’s $300,000 = 2% for Bud = $6000

The stock goes to 18 (up 20%)

          That’s $360,000 = 2% for Bud = $7200

A one day profit for Gekko of $46,800; a one day gain for Bud of $13,200.

Next Gekko gives Bud a check for $1,000,000 to open an account.

D.      TERAFLY (TFY)

Bud buys into TERAFLY (TFY); 38,000 shares at 13

          That’s $490,000 = 2% for Bud = $10,000

TFY drops to 9 1/2 ( down 26%).

          That’s $357,000 = 2% for Bud = $7000

Bud made $17,000; but he lost $100,000 of Gekko’s money.

E.    STALKING WILDMAN

Gekko tells Bud  to stalk Wildman

          WHY?  RTC Pharmaceutical:  Gekko takeover attempt

                   RTC “Poison Pill”

                   Wildman bribes secretary, becomes “White Knight”

Bud discovers Wildman is going to buy up Anacott Steel in Erie Pensylvania

F.      ANACOTT STEEL (ANC)

1.       Gekko had Bud buy $1,000,000 worth of ANACOTT STEEL in 1000 share blocks at $46

                   with a price limit of $50 (total = 21,739 shares)

          That’s $1,000,000 = 2% in for Bud = $20,000

        AST climbs to 50 (up 9%).

2.      Bud tells his friends to “snack” on Anacott, then tells the Wall Street Chronicle that

                   “Blue Horseshoe loves Anacott Steel.”

        The stock zooms to 51 1/8 (up 11%).

3.       Wildman comes to Gekko’s party, offers $65

                    He wants to INVEST in the company, every dollar over the market price he has to pay is a dollar he can’t reinvest in            

                    capital improvements = LONG RUN

4.      Bud says the BREAKUP VALUE is $80 = SHORT RUN

5.       Gekko says he’ll sell at $72

6.      Wildman accuses Gekko of GREENMAIL, says he would sell his Mom and send her C.O.D.

                   threatens to dump the stock, offers $71

          Gekko says $71 1/2.  Wildman agrees.

            Gekko says he has to sell, Wildman has 6X the capital reserves (money)

21, 739 shares at $71 1/2  (up 56%)= a one day profit for Gekko of $560,000

          That’s $1,560,000 (minus $20,000 in for Bud) = 2% out for Bud = $31,000

One year as an honest broker = $50,000

          A week with Gekko = $13,200+$17,000+$51,000 = $80,000+ (TLD?)

And then Gordon gives Bud a “Bonus” of $800,000 for a job well done.

INSIDER TRADING?

Yes!--

          Stalking is a Felony

          Obtain Inside Information ILLEGALLY:  Anacott Steel;

            then ACT on it

            and PROFIT from it

          ALSO Securities Fraud:  deceptive buying from “parked” funds, and offshore accounts

He starts "parking" Gekko's funds from Holding Company in the Cayman's in friends' accounts

WALL STREET QUIZ

ANSWER SHEET

   Young stockbroker Bud Fox has convinced Wall Street entrepreneur Gordon Gekko to buy a controlling interest in Blue Star Airlines in order to “turn the company around.”  Bud relies on his father, Union Leader Karl Fox, to arrange employee support for Gekko’s takeover bid.  However, Bud later discovers that Gekko intends to fire the workers, break up the company, and sell the airline’s real capital stock.  Bud plans to thwart Gekko’s evil plot by following Billy Ray Valentine’s advice from Trading Places:  “The best way to hurt rich people is by turning them into poor people.”

          Using the Supply and Demand graph for Blue Star Airlines stock, graph the results of the following actions.  Bonus points will be awarded for knowing the actual prices at which these transactions took place in the film.

A.        Bud knows Gekko is planning to buy a controlling interest in Blue Star Airlines.  Gekko owns 12%, but needs another 39% of the stock.  Bud tells his friends, other brokers, and the newspapers that “Blue Horseshoe loves Blue Star Airlines.”

          Using the Supply and Demand Graph for Blue Star Airlines below, graph the results of Bud’s actions in the marketplace.

Price = $19

Demand up, Price = $21

B.      Bud tells Gekko that the Union must have leaked word of the takeover bid to the press, and that Gekko must now come out in the open and buy up the necessary shares before the price goes too high.  Gekko agrees.

          Using the Supply and Demand Graph for Blue Star Airlines below, graph the results of Gekko’s actions in the marketplace.

Price = $21

Demand up, Price = $24

C.      Bud now tells his friends and the other brokers in the office to “dump” Blue Star stock, and sell it to Gekko at the highest price they can get.  He also advises Sir Lawrence Wildman to “sell short” in Blue Star (makes no sense for Wildman to "sell lightly" to drive price DOWN to 18; he must short then cover).

          Using the Supply and Demand Graph for Blue Star Airlines below, graph the results of Bud’s actions in the marketplace.

Price = $24

Supply up, Price = $21

then Short drives price down to $18

D.      The Union informs Gekko that the deal they made with him is off, and that they will sabotage the airline if he continues his takeover attempt.  Bud advises Gekko to sell off his Blue Star holdings at whatever price he can get.  Gekko reluctantly agrees.

          Using the Supply and Demand Graph for Blue Star Airlines below, graph the results of Gekko’s actions in the marketplace. 

Price = $18

Supply up, Price = $16

E.      Wildman covers, and tenders an offer to buy a controlling interest in the company.

          Using the Supply and Demand Graph for Blue Star Airlines below, graph the results of Wildman’s actions in the marketplace.

Price = $16

Wildman covers, offers buyout

Demand up, Price = $18

Gekko total   - $8 a share

Wildman +$6 a share

Wildman uses Gekko's money to buy BST, and Gekko doesn't even get the buyout offer price.

I. WHISTLEBLOWER

Are the following prople guilty of INSIDER TRADING?  SECURITIES FRAUD?

                   Sould they go to JAIL, be FINED, or be set FREE?

Bud, Carl, Larry, Gordon?  (Gordon must be acquitted:   he is protected by both

          the POWER OF ATTORNEY he had Bud sign - No knowledge or action

          the OFFSHORE BANK ACCOUNT - No non-disclosure, can trace the money from Bud to bank but not to Gekko

What must you do to find Gordon guilty?  show a connection between Bud and Gekko.

          The tape shows that Gordon:

1. Knew and

2. took action which overcomes the Power of Attorney and allows them to supoena  Gekko’s records and connect the money from Gekko to bank

What about Fraud?

        13d violation:  break up blue star airlines?