Question

What would you do? Consider all options (pros and cons) and explain your reasoning. You are Michael & Bernard. After fifty years in the coal business as senior executives in Deep Coal, Inc., you both have decided it’s time to retire. You see the writing on the wall and popular sentiment is that “coal is out” and “clean-energy is in.” Michael & Bernard would like to cash out (sell their shares) of Coal, Inc. and retire in style, as they always dreamed of doing, but Federal Regulations limit the amount of stock they can sell each year. At this rate, they estimate it will take 5.7 years to sell all of their stock and they will lose millions, especially if the price really starts falling. There goes the retirement they dreamed of. After careful thought, Michael & Bernard come up with a plan. They will artificially inflate the price of the stock. They can do this with a little creative accounting. Nothing will be illegal. After a year of artificially inflating the stock price, they are approached by Jeannie and her husband Jamie with an important question: They need money and are wondering if they should invest all of their savings and retirement in Coal, Inc. stock, since it is going so well. Michael & Bernard have known Jeannie since she was a little girl. She is their daughters’ best friend. In fact, Jeannie calls them “Uncle Mikey and Uncle Bernie.” When Jeannie graduated from Ross Business School, they were proud to help her get her job at Deep Coal, Inc., where she has done very well. What should they tell Jeanie? Remember, corporate executives are not allowed to "Inside Trade," meaning they can't disclose information affecting the price of company stock that they learned from their position inside the company.

Answer 1

This assessment will tell about the options available to Michael and Bernard with pros and cons and explain the reasoning.

1. Do not tell anything related to the future decrease in prices. Just make an offer without any misstatement, while concealing such facts.

The pros of choosing this option would be that they will get to retire in the manner they wanted to, and there would be no insider trading by telling actual positions of the shares to Jeanie.

However, the major drawback of this option would be that there would be a lack of Fulfillments of their ethical obligations to tell about the actual reason behind this offer.

2. Tell Ganie everything regarding the inflation and their motive and then convince her to buy shares or find any other person to buy.

Pros would be that both would not feel guilty of allowing Genie to buy stocks through misrepresentation, which would be unethical. However, they would suffer from significant cons of insider trading, where they revealed the predictions regarding the company's future position to someone.

What would they do: the first option would be better.

Reasoning: Michael and Bernard adjust, offering Jeanie to buy the company's shares while not doing any illegal practices, like insider trading. They are just concealing false information about their stock prices through a little creativity without being illegal.

However, the second option would be illegal, as everybody will consider it as insider trading.