The focus of this paper is Ethics.
What Is Insider Trading?
When most people hear the term “insider trading,” they think of a crime.
But by its most basic definition, insider trading is the trading of a public company’s stock or other securities by individuals with access to nonpublic, or insider information about the company. This can include perfectly legal buying and selling of stock by a company’s corporate insiders. But it can also include illegal actions of individuals attempting to benefit from a trade based on that inside information.
Legal Insider Trading
Legal insider trading is a common occurrence among employees who hold stock or stock options. Insider trading is legal when these corporate insiders trade stock of their own company and report these trades to the U.S. Securities and Exchange Commission (SEC) through what is known simply as Form 4. Under these rules, the insider trading is not secretive as the trade is made publicly. That said, legal insider trading is but a few steps away from its illegal counterpart.
Illegal Insider Trading
Insider trading becomes illegal when a person bases their trade of securities of a public company on information that the public does not know. Not only is it illegal to trade your own stock in a company based on this insider information, but it is also illegal to provide another person with that information, a tip so to speak, so they may act with their own stock holdings using that information.
Take Home Paper – Ethics:
In 2015, Marjorie sold all her shares of the biotech company, Juno. Just two days later, Juno’s stock fell 16% after it was publicly announced that the Food & Drug Administration (FDA) had not approved Juno’s primary pharmaceutical product. By selling her shares in the company prior to the announcement and subsequent drop in the stock’s value, Marjorie avoided a $45,673 loss. But she was not the only who benefitted from a quick sale. The then Juno CFO, Harry Buck CPA, had also ordered the sale of his extensive share in the company, a $5 million stake to be exact, prior to the news being made public.
Over the course of the investigation, it came to light that Marjorie had acted on a piece of nonpublic information, but that the information was not explicit knowledge of the FDA’s decision about Juno’s drug approval. Marjorie had acted upon a tip from her Merrill Lynch broker, her cousin Peter Bender. Bender knew that Buck was attempting to unload his large stake in his company, and while he did not know precisely why, he tipped Marjorie off on Buck’s actions which lead to her selling of her shares. Marjorie did not have knowledge of why her cousin suggested she sell her Juno shares.
During the investigation Marjorie told investigators she had a standing sell order of her Juno stock at $60 per share should the stock go down. The story of a standing sell order was not true. Marjorie’s cousin asked her to make a “little fib” because no one was getting hurt and if she didn’t state there was a standing order to sell, he might lose his job. Peter stated “I did nothing illegal. Come on – help me out”.
Required:
Part 1:Are there any violations of insider trading or other possible criminal charges as to:
Harry Buck
Marjorie
Peter
Part 2: What are normally central themes as to unethical behavior? Use the concepts of the fraud triangle in your answer.
Part 3: Assuming a formal investigation is conducted by the SEC. How should the Board of Directors handle the allegations to minimize damage to the corporation. What actions should the corporation take to make sure lessons are learned by all employees in the organization? Who else might impose sanctions as to Harry should the investigation conclude Harry is culpable?
Part 4: How do you personally (your benchmark) determine if an action is ethical or not ethical?
