My friend Joe works at a drug company, and he heard that in a week, the...

My friend Joe works at a drug company, and he heard that in a week, the drug company is going to approval for its newest blockbuster drug to cure cancer. Before the world knows about this, Joe tells me. I tell my brother Jim. Then Jim goes and buys lots of stock in this drug company. A week later, the world learns of the drug approval and the stock price increases by 200%. Jim is a millionaire from his trades. The SEC learns of this and investigates it. Who might be in legal trouble? How would we decide? Explain why.

Solutions

Expert Solution

Lets first see what insider trading is. Insider trading is when someone, who has an information about the company which is not in public domain, trades shares based on that information. This gives him/her an advantage because they have information others dont have and hence can benefit out of it.

There are 3 players here- you, your friend Joe (who works at the company) and Jim. Lets examine one by one.

Jim for sure is in trouble. He clearly used insider information for his benefit. And as such, he is in legal trouble.

For Joe, he is in trouble for leaking confidential information, but him being in trouble for insider trading depends upon his intention. If he gave out the information without the thought of benefit, then he is not in trouble for insider trading (though he is still in trouble for leaking confidential information). But if he knew that it was going to benefit Jim, then he is also in trouble for insider trading.

The same goes for you. If the intention was benefit of Jim, then you are in trouble. If it was told just as matter of factly, without intention of benefit, then no trouble for you as you neigher leaked the information nor wanted to benefit from it.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Joe is a manager in a drug store and he is responsible for setting prices of...

Joe is a manager in a drug store and he is responsible for setting prices of batteries. He knows the price elasticities of the top 2 brands – Energizer and Duracell – from previous research. They are shown in the table below, in which the column represents the brand with price change. For instance, the number on the top right is the cross price elasticity of the demand for Energizer with respect to the price of Duracell. Price change Energizer...

Joe is a company director in a proprietary company. He is proposing to put a resolution...

Joe is a company director in a proprietary company. He is proposing to put a resolution to his company that it buy out the smaller holdings. Joe reasons that there are a number of quite large shareholders and many of the smaller members have little interest in the company. Joe doesn't want to force any member to sell their shares but would like to clean up the register by buying out the smaller holdings. Required:advice Joe on the legal implications...

My friend lost a bet with me and now owes me money. However, he is broke...

My friend lost a bet with me and now owes me money. However, he is broke and will pay me in increments. $500 in two years, $400 in 4 years, and finally, $1000 in ten years, with an interest rate 3.2%. How much money did he bet today (present value)? If you could, please show the formula and how you got the answer. The answer we are given is $1,551.92 and I'm confused on how to get there. Thanks!

My friend drives a 2010 Nissan Altima with ≈ 105,500 miles. Assuming he could drive this...

My friend drives a 2010 Nissan Altima with ≈ 105,500 miles. Assuming he could drive this car for up to 5 more years and then sell, calculate the equivalent uniform annual cost of ownership over the next 5 years. Specific Instructions: 1. Estimate 6 costs of ownership over the next 5 years. He knows his car is aging, so at least two of your cash flows need to be gradient cash flows. Explain each of your estimates (e.g. if you...

Kevin Nguyen works for ABCO Corporation at a salary of $700 per week. He is paid...

Kevin Nguyen works for ABCO Corporation at a salary of $700 per week. He is paid every two weeks. The following is deducted from his bi-weekly pay: income tax $185, CPP $60, and EI premiums of $25. The employer is also required to make employee contributions of $60 to CPP and EI premiums of $35. Indicate which of the following statements are correct (Select as many as appropriate.) a. Kevin’s net pay for the period will be $1,130 b. The...

Your friend, Brian, works as an Electrician working on several Commercial Buildings. He has recently finished...

Your friend, Brian, works as an Electrician working on several Commercial Buildings. He has recently finished his apprenticeship and is starting to get paying customers. He has contacted you as he knows you have been undertaking some accounting studies as part of your qualifications as he has decided to start his own Electrical Business. He wants some advice regarding his options for the structure of his new business venture, which are either a sole trader or a company. He anticipates...

A friend asked for your advice. He said that he worked for a public company in...

A friend asked for your advice. He said that he worked for a public company in the financial department. He knows that the company violated labor wage laws and under-reported wages to save money on required payments for workers’ compensation insurance. He believes they may have committed other financial improprieties but doesn’t have direct knowledge. He feels he helped perpetrated a fraud and may have himself engaged in unlawful conduct. He feels particularly aggrieved because he says he always is...

General Assignment: My friend drives a 2010 Nissan Altima with ? 105,500 miles. Assuming he could...

General Assignment: My friend drives a 2010 Nissan Altima with ? 105,500 miles. Assuming he could drive this car for up to 5 more years and then sell, calculate the equivalent uniform annual cost of ownership over the next 5 years. Specific Instructions: Estimate 6 costs of ownership over the next 5 years. He knows his car is aging, so at least two of your cash flows need to be gradient cash flows. Explain each of your estimates (e.g. if...

During a weekly meeting the CEO of company made an statement that he heard from a...

During a weekly meeting the CEO of company made an statement that he heard from a friend that “There is general agreement that, before it can be regarded as useful in satisfying the needs of various user groups, accounting information should satisfy certain criteria.” You as a chief account of the company is required to explain the to the CEO the key characteristics of Accounting Information with clearly providing example(s) wherever queried for each characteristic.

Pierre works five days a week. He has 12 shirts, 8 pants, 8 ties, and 4...

Pierre works five days a week. He has 12 shirts, 8 pants, 8 ties, and 4 jackets that he can wear to work. Of these, 4 shirts, 3 pants, 2 ties, and 2 jackets are blue. Each day he randomly selects one of each item to wear. Assume the selections are independent, and assume his butler launders the clothes every night so he has full closet each morning. What is the probability pierres entire outfit next Monday will be blue?...

Subjects