Business 8th Edition by Marianne Jennings

Exercise 3

Raymond Dirks was an officer in a Wall Street brokerage house. He was told by Ronald Secrist a former officer of the Equity Funding of America Company, that Equity Funding had significantly overstated its assets by writing phony insurance policies. Mr. Secristurged Mr. Dirks to investigate and expose the fraudulent practices. Mr. Dirks checked with Equity Funding management and received denials from them, but he received affirmations from employees.
Mr. Dirks discussed the issue with clients, and they "dumped" nearly $6 million in Equity Funding stock, but Mr. Dirks and his firm did not trade the stock. The price of the stock fell from $26 to $15 during Mr. Dirks's investigation. He contacted the Wall Street Journal bureau chief about the problem, but the bureau chief declined to get involved.
The SEC charged Mr. Dirks with violations of 10b-5 for his assistance to his clients. Did he violate 10b-5? [ Dirks v SEC, 463 U.S. 646 (1983)]