Question

Sam Smith has been working as a budget financial analyst in the controllers department of a large, publicly-held consumer products company for several months. He is very proud of the fact that he was able to land a good entry-level position at a well known global company.  During his first review, Sam's manager, Lynn, told him that he is meeting and regularly exceeding expectations and that she is very optimistic about his prospects with the company.

Several days later, Sam was invited to a company social event at a local restaurant. Some of the company's leaders would be there as well as several new hires, like himself. Sam was excited about the prospect of exposure to company executives and was a bit nervous as well.

During the dinner, Sam excused himself to call his Mom. She contracted the flu earlier in the week and Sam wanted to check up on her. On his way outside the restaurant, he overheard two of his company executives discussing the prospect a new product launch failure. The company was trying to break into the lucrative high-end dog food market and had spent heavily in marketing and promotion, but were far from hitting their sales targets. The two executives did not realize that they were being overheard by Sam.

After the dinner Sam returned home. He was concerned about what he inadvertently heard about the dog food product launch failure.  To unwind, he called his close college friend, Denise to catch-up. She too had landed a good job after college at a rapidly growing internet marketing firm. They shared their recent experiences and Sam mentioned what he had overheard earlier in the evening. They talked for about an hour about their recent experiences and their friends and agreed to speak again soon.

The following week, Denise had lunch with her uncle and mentor, Bill. Bill's role as her mentor began when Denise decided to major in business. Bill was a successful entrepreneur and was very helpful to Denise in helping her ease the transition to the working world. During lunch, Bill asked how her friends were progressing at work. Denise shared updates on her friends and mentioned Sam's "bummer" of an experience his company dinner.

After lunch, Bill went to his office and began to research the dog food product launch at Sam's company and the competitive market for similar offerings. After about an hour, Bill purchased $5,000 of options to sell the stock through his Fidelity account.  Two weeks later, the stock lost 7% of its value after the news of the product launch failure was disclosed by the company in a meeting with securities analysts. Bill made a sizable profit on the transaction. He told his spouse that he was planning a very special gift for her in celebration of their 25th wedding anniversary next month.

Questions: Answer the following, making reference to ethical standards as promulgated by a regulatory or professional body.

1.      Did either Sam, Denise or Uncle Bill do anything unethical?

2.      Did either Sam, Denise or Uncle Bill do anything illegal?

3.      If illegal or unethical activity occurred, what steps could have been taken to prevent it?

Answer 1