Case 8: S.E.C. Litigation Release No. 22958 (March 31, 2014): Securities and Exchange Commission v. Ching Hwa Chen, Civil Action No. 5:14-cv-01467 (U.S. District Court for the Northern District of California) (Mallor 16^th Ed., Case 18, p. 1231).

The Securities and Exchange Commission today charged a Silicon Valley man with insider trading ahead of Informatica Corporation's announcement that it would miss its quarterly earnings target based on confidential information he gleaned from his wife, a tax director at Informatica. The SEC alleges that Ching Hwa Chen of San Jose, Calif., profited from gleaning confidential information in mid-2012 that his wife's employer, Informatica, would miss its quarterly earnings target for the first time in 31 consecutive quarters. During a drive to vacation in Reno, Nev., Chen overheard business calls by his wife, who previously advised Chen not to trade in Informatica securities under any circumstances. However, after they returned from Reno, he established securities positions (shorting its stock, buying put options, and selling call options) designed to make money if the stock price fell. Informatica's shares declined more than 27 percent after it announced the earnings miss, and Chen realized nearly $140,000 in profits. Without admitting or denying the allegations, Chen agreed to pay approximately $280,000 to settle the SEC's charges.

The SEC's complaint charges Chen with violations of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. Chen has settled the SEC's charges without admitting or denying the allegations. He has agreed to the entry of a judgment enjoining him from future violations of the relevant provisions of the Exchange Act, and to pay disgorgement and prejudgment interest of $142,365, and an additional penalty equal to his profits of $138,068.

1. Although the wife of Ching Hwa Chen instructed her husband not to trade in Informatica securities under any circumstances, she may be found liable for violating Section 10(b) under the theory of aiding and abetting.
2. The wife of Ching Hwa Chen is an insider for the purposes of Section 16, and is prohibited from engaging in short swing transactions.
3. Ching Hwa Chen violated Section 10(b) of the 1934 Securities Exchange Act by engaging in insider trading, because he had reason to know the information he learned from his wifes telephone conversations was confidential and could affect the value of the securities.
4. Ching Hwa Chen can be found liable for insider trading by shorting its stock, buying put options, and selling call options while in possession of confidential information Informatica would miss its projected earnings mark under the theory of misappropriation.
5. Ching Hwa Chen activities in shorting Informaticas stock, buying put options, and selling call options are immoral under act utilitarianism, rule utilitarianism, Kants categorical imperatives, and Rawls equal liberty theory.

answer True or False for each question with explanation.