Cengage Advantage Books: Business Law Today, The Essentials 10th Edition by Roger LeRoy Miller

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Insider Trading. Jabil Circuit, Inc., is a publicly traded electronics and technology company. A group of shareholders who owned Jabil stock from 2001 to 2007 sued the company and its auditors, directors, and officers for insider trading. Stock options were a part of Jabil's compensation for executives. Sometimes, stock options were backdated to a point in time when the stock price was lower, so the options would be worth more to certain company executives. Backdating is not illegal so long as it is reported, but Jabil did not report the fact that backdating had occurred. Thus, expenses were underreported, and net income was overstated by millions of dollars. The shareholders claimed that by rigging the stock price by backdating, the executives had engaged in insider trading and could pick favorable purchase prices and that there was a general practice of selling stock before unfavorable news about the company was reported to the public. The shareholders, however, had no specific information about these stock trades or when (or even if) a particular executive was aware of any accounting errors during the time of any backdating purchases. Were the shareholders' allegations sufficient to assert that insider trading had occurred under Rule 10b-5? Why or why not? [Edward J. Goodman Life Income Trust v. Jabil Circuit, Inc., 594 F.3d 783 (11th Cir. 2010)] (See pages 618-620.)