Bob Ketchum and Randy Cheatham, two refugees from the collapse of international megafirm Browbeat, Phlog & Harassem, opened their own practice, Ketchum & Cheatham, LLP, a duly registered and licensed California limited liability partnership with Bob and Randy as its managing general partners. Their written agreement contained an indemnity clause as permitted by statute. The clause provided the firm was required to indemnify either partner for legal expenses incurred in a successful defense of any claim connected with the partnership. Things went very well for the new firm. It specialized in representing tech start-up companies and venture capitalists. Randy handled the transactional work and Bob did the litigation. Before long they both had more work than they could possibly handle. They decided to expand, and placed ads online for experienced associates. One day while Randy was interviewing a fourth-year intellectual property lawyer from a Palo Alto firm, the interviewee began extolling his experience in handling various patent disputes. Before Randy could stop him, the young lawyer told Randy about a deal he had been working on just that morning for a seed company named Sprout, Inc. Randy moved him off the topic, but not before the lawyer revealed that Sprout, which was publicly traded, was just days away from launching a genetically engineered corn seed that was resistant to the European Corn Borer, a pest that annually costs corn growers hundreds of millions of dollars. Randy wrestled with his decision over a sleepless night, and the next morning he logged onto ETrade and purchased 10,000 shares of Sprout stock in his own name. It was trading at $8.00, and Randy borrowed $80,000 from his 401K to make the purchase. After the product announcement hit the wires, the price of Sprout shares rose steadily until it leveled off at $35 a share about one month later. Randy sold his 10,000 shares two months after he had bought them and made a tidy profit of $270,000. After he repaid the loan from his 401K, Randy immediately went to a jewelry store he passed on the way home every day and purchased an Audemars Piguet wrist watch that he had long admired, paying full retail of $52,348. One month later, Randy was sitting in his office admiring his new wristwatch, when a letter from the Analysis and Detection Center of the Market Abuse Unit of the U.S. Securities and Exchange Commission was hand-delivered. The letter asked Randy to stop by the SEC offices in San Francisco for a chat about Randy's trades in Sprout, Inc. stock, and to bring with him his telephone records for the past six months. When he arrived for the meeting, he was ushered into a conference room and introduced to two lawyers in the Enforcement Branch of the SEC, who started the meeting off by informing him of his right to remain silent and his right to an attorney.

Did Randy's purchase and sale of Sprout, Inc., shares violated Section 10B of the Securities Exchange Act of 1934 and SEC Rule 10B-5. What defenses can Randy raise?