Rattell, Inc. is a toy manufacturer specializing in games for girls and boys aged eight to twelve. On June 30, Rattell predicted first-quarter earnings of $0.15 per share. On July 15, Rattell received a fax from its key distributor reporting a $5 million claim for personal injury of an eleven-year-old child who was allegedly injured by a design defect in Rattell's most popular product line, the Amity Spartans. Rattell's outside counsel was instructed to prepare a press release describing the claim. Before the press release was sent to the copy center at Rattell's executive office, the vice president of sales, one director, and the outside counsel sold all of their Rattell shares at the prevailing market price of $25.25 per share.
Carol Copier, who ran the photocopying machine at Rattell's executive office, saw the draft press release.
She called her broker, Bruce Broker, told him about the press release, and ordered him to sell the 500 shares of Rattell that she had acquired in Rattell's initial public offering. Broker then called his best client, Charles Client, and suggested that he sell his 100,000 shares of Rattell stock but did not tell him why. Client agreed, and Broker sold Copier's and Client's stock at $25.25 a share right before the market closed on July 17.
The press release was publicly announced and was reported on the Business Wire after the market closed on July 17. The next day, Rattell's stock opened at $20.75 per share. Plaintiffs have brought a private class-action suit, and the SEC has commenced enforcement proceedings.
Criminal prosecution is threatened by the U.S. Attorney's Office.
What are the bases on which each proceeding could be brought? Who is potentially liable? For how much?