Question

David Gain was the chief executive officer (CEO) of Forest Media Corp., which became interested in acquiring RS Communications, Inc. To initiate negotiations, Gain met with RS’s CEO, Gill Raz, on Friday, July 12. Two days later, Gain phoned his brother Mark, who bought 3,800 shares of RS stock on the following Monday. Mark discussed the deal with their father, Jordan, who bought 20,000 RS shares on Thursday. On July 25, the day before the RS bid was due, Gain phoned his parents’ home, and Mark bought another 3,200 RS shares. The same routine was followed over the next few days, with Gain periodically phoning Mark or Jordan, both of whom continued to buy RS shares. Forest’s bid was refused, but on August 5, RS announced its merger with another company. The price of RS stock rose 30 percent, increasing the value of Mark’s and Jordan’s shares by $664,024 and $412,875, respectively.

1) Did Gain engage in insider trading? Explain.

2) What is required to impose sanctions for this offense? Explain.

3) Could a court hold Gain liable? Why or why not? Explain.

Answer 1

ANSWER

In common parlance Insider trading on stock or shares of companies with access to non-public company information. Insider dealing covers both legitimate and criminal actions where the legal form is where company insiders including managers , directors and staff purchase and sell shares in their own firms. When business insiders buy or sell their own shares, their trades must be disclosed to SEC. Illegal insider trading is a violation in trust or faith where the ownership in secret, non-public knowledge, arises in trading. In the case above, Forest Media Corp. 's David Gain (CEO),. who was involved in purchasing RS Communications told his brother about the transaction and purchased RS Communication shares in expectation that the price of RS Communication would increase at the end of the deal and that it could be acquired on the basis of workers. Although Forest rejected his bid and merged with another corporation, David Gain was not forgiven for his illegality and for his insiders' trading preview. Mr. Gain will be accused of revealing information about the organization from a non-public source and punishing him for that fact after the inquiry.

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