Pan American (Pan Am) was one of the oldest American-flag airline companies. It flew many domestic routes and also provided an extensive network of flights between the United States and Europe. In earlier years Pan Am had been quite profitable, but it was hit hard by the intense competition which erupted in the U.S. airline industry following the deregulation of aviation in the late 1970's. During most of the years since 1980 it has sustained significant losses. During 1976 and 1979 the price of its common stock averaged $16 per share. In 1989, following a series of terrorist incidents in Europe, bookings on flights between Europe and the Unites States fell off drastically. Pan Am was especially vulnerable to this development, and the price of its shares fell to $2.

Hawke was a Wall Street financier with a reputation as a "takeover artist". Since he believed that in the long run Pam Am could become profitable, he decided to take it over while the price was low. On April 1 1989 he contacted Johnson (the CEO of Pam Am) to discuss "an extremely important matter". At the meeting (held on April 3 1989 under very tight security) he proposed a "friendly takeover" in which Hawke Investment Corp. would acquire all of Pam Am at a price of $8 per share. He also stated that if this offer were rejected he intended to launch a hostile tender offer so that he could take control of the company. Johnson promised to give him an answer after consulting with the Pam Am board. The board met on April 5 1989 and, at Johnson's urging, decided to fight the takeover. These meetings were kept secret.

Susan was Johnson's executive secretary. She had attended the Pam Am board meeting. On April 6 1989 she called her former boyfriend Robert, who owned 5000 shares of Pam Am stock. She told him that "Pam Am is going down the tubes it is headed for bankruptcy" but that for "old times sake" she would buy his stock for $2 per share. Since he was in financial trouble, he sold her the shares that night at a price of $2 per share.

Angela was a Pam Am director. She did not buy or sell any stock, but she did phone her friend Foster on April 7 1989 to tell him about Hawke's plans. Foster then bought 10,000 shares from Howard at a price of $4 each. On April 10 Hawke announced a tender offer for 51% of Pam Am's stock at $8 per share. The next day the market price rose to $7.

Leo was an attorney who worked for the firm that represented Hawke. He was assigned to prepare the legal paperwork for the tender offer; he knew all details concerning the attempt by Hawke to acquire control of Pam Am. On 9 April 1989 Leo purchased 10,000 shares of Pam Am stock at $4 per share through Larry, his broker at Merrill Lynch. Leo told Larry about the upcoming attempt by Hawke to take control of Pam Am. Larry purchased 5000 share of Pam Am stock at $4 per share.

Robert and Howard were very angry that they had sold at such a low price. Could either of them bring any successful lawsuits to recover any compensation for having missed out on the increase in the price of Pam Am shares after they had sold their stock? Explain.

The SEC during an investigation learned of the purchases of Pam Am stock made by Larry and Leo. Could it successfully bring a lawsuit requiring either of them to pay any damages in connection with their purchase of Pam Am shares? Explain.

Pan American (Pan Am) was one of the oldest American-flag airline companies. It flew many domestic routes and also provided an extensive network of flights between the United States and Europe. In earlier years Pan Am had been quite profitable, but it was hit hard by the intense competition which erupted in the U.S. airline industry following the deregulation of aviation in the late 1970's. During most of the years since 1980 it has sustained significant losses. During 1976 and 1979 the price of its common stock averaged $16 per share. In 1989, following a series of terrorist incidents in Europe, bookings on flights between Europe and the Unites States fell off drastically. Pan Am was especially vulnerable to this development, and the price of its shares fell to $2.

Hawke was a Wall Street financier with a reputation as a "takeover artist". Since he believed that in the long run Pam Am could become profitable, he decided to take it over while the price was low. On April 1 1989 he contacted Johnson (the CEO of Pam Am) to discuss "an extremely important matter". At the meeting (held on April 3 1989 under very tight security) he proposed a "friendly takeover" in which Hawke Investment Corp. would acquire all of Pam Am at a price of $8 per share. He also stated that if this offer were rejected he intended to launch a hostile tender offer so that he could take control of the company. Johnson promised to give him an answer after consulting with the Pam Am board. The board met on April 5 1989 and, at Johnson's urging, decided to fight the takeover. These meetings were kept secret.

Susan was Johnson's executive secretary. She had attended the Pam Am board meeting. On April 6 1989 she called her former boyfriend Robert, who owned 5000 shares of Pam Am stock. She told him that "Pam Am is going down the tubes it is headed for bankruptcy" but that for "old times sake" she would buy his stock for $2 per share. Since he was in financial trouble, he sold her the shares that night at a price of $2 per share.

Angela was a Pam Am director. She did not buy or sell any stock, but she did phone her friend Foster on April 7 1989 to tell him about Hawke's plans. Foster then bought 10,000 shares from Howard at a price of $4 each. On April 10 Hawke announced a tender offer for 51% of Pan Am's stock at $8 per share. The next day the market price rose to $7.

Leo was an attorney who worked for the firm that represented Hawke. He was assigned to prepare the legal paperwork for the tender offer; he knew all details concerning the attempt by Hawke to acquire control of Pam Am. On 9 April 1989 Leo purchased 10,000 shares of Pam Am stock at $4 per share through Larry, his broker at Merrill Lynch. Leo told Larry about the upcoming attempt by Hawke to take control of Pam Am. Larry purchased 5000 share of Pam Am stock at $4 per share.

Robert and Howard were very angry that they had sold at such a low price. Could either of them bring any successful lawsuits to recover any compensation for having missed out on the increase in the price of Pam Am shares after they had sold their stock? Explain.

The SEC during an investigation learned of the purchases of Pam Am stock made by Larry and Leo. Could it successfully bring a lawsuit requiring either of them to pay any damages in connection with their purchase of Pam Am shares? Explain.