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ASIC alleged that Rich and Silbermann failed to exercise due care and diligence by failing to keep the board of directors of One.Tel sufficiently informed of material information about the true financial condition, performance and prospects of One.Tel, especially in the period leading up to the cancellation of a proposed rights issue in May 2001.
Intentional omission of material information is a material misstatement.
In October 2000, the S.E.C. changed the rules to make trading while aware of material information clearly illegal, too.
Companies may not delay disclosure of material information solely because an investigation is continuing.
Political intelligence may not meet the standard of "material" information when it is about broad trends in government policy.
Allen Ferrell, a law professor at Harvard, said the suit rested on an unusual definition of material information.
Of course, banks maintain that they have built impenetrable walls in their organizations to prevent seepage of material information.
"Well-timed" trading before a public disclosure of material information has all the hallmarks of insider trading.
Every large institution -- whether an underwriter or partnership investor -- that was aware of material information withheld from Enron investors could find itself in court, securities lawyers said.
He also said he thought efforts might be made to repeal Regulation FD, for fair disclosure, the rule that bars selective disclosure of material information.
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