Cengage Advantage Books: Foundations of the Legal Environment of Business 2nd Edition by Marianne Jennings, Albert Napier, Marianne Jennings

Exercise 15

In August 1994, Mervyn Cooper, a psychotherapist, was providing marriage counseling to a Lockheed executive. The executive had been assigned to conduct the due diligence (review of the accuracy of the books and records) of Martin Marietta, a company with which Lockheed was going to merge.
At his August 22, 1994, session with Mr. Cooper, the executive revealed to him the pending, but nonpublic, merger. Following his session with the executive, Mr. Cooper contacted a friend, Kenneth Rottenberg, and told him about the pending merger. They agreed that Mr. Rottenberg would open a brokerage account so they could buy Lockheed call options and common stocks and then share in the profits.
When Mr. Rottenberg went to some brokerage offices to set up an account, he was warned by a broker about the risks of call options. Mr. Rottenberg told the broker that Lockheed would announce a major business combination shortly and that he would not lose his money.
Did Mr. Rottenberg and Mr. Cooper violate Section 10(b)? What about the broker? [ SEC v Mervyn Cooper and Kenneth E. Rottenberg, No. 95-8535 (C.D. Cal. 1995)]