Question: The managements of Combustion Engineering, Inc. (CEI), and Basic, Inc., entered negotiations regarding CEI's acquiring Basic. Despite the secrecy of the merger negotiations, there were

The managements of Combustion Engineering, Inc. (CEI), and Basic, Inc., entered negotiations regarding CEI's acquiring Basic. Despite the secrecy of the merger negotiations, there were repeated instances of abnormal trading in Basic's shares, with trading volume rising from 7,000 per day to 29,000. Basic issued a public statement that "the company knew no reason for the stock's activity and that no negotiations were under way with any company for a merger." Did Basic's statement violate Securities Exchange Act Rule 10b-5?

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