A secretary for the XYZ Banking Corporation mentioned to her good friend that she overheard a...

A secretary for the XYZ Banking Corporation mentioned to her good friend that she overheard a company executive discussing plans to sell the company to a very large, financially healthy conglomerate. The secretary’s company is publicly traded, and the future announcement of this sale will initially create a buy signal for investors who would like to make some money trading XYZ Banking Corporation. The secretary’s friend quickly purchased XYZ Banking Corporation stock, which was at a yearly low, in anticipation that the stock price will rise and she will realize a good return on her investment when she decides to sell. Since this information is not yet available to the general public,

A. The friend is participating in a legal trade.

B. The friend is participating in insider trading, but the source of her information is not liable.

C. The friend is participating in insider trading, and the source of her information is also liable.

D. The friend is participating in insider trading, but only the source of her information is liable. Once the

secretary mentioned it to the friend, it became general public knowledge.

Expert Solution

C. The friend is participating in insider trading, and the source of her information is also liable.

Insider trading means using private information for making illegal gains from information which is not yet available to the public. In this case there are two parties- the tipper and the tippee. The tipper is the secretary who has given the information and who is in fiduciary position with the company. The tippee is the friend who took advantage of the information. Both are liable for insider trading.

A: Incorrect since this is an illegal trade.

B: Incorrect since the secretary is also liable for giving confidential information.

D: Incorrect since the friend is the tippee and so is liable for the illegal trade.

jeff jeffy answered 2 years ago

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