Insider Trading Assignment essay sample

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Insider Trading

Question 1

Insider trading is happening when the stocks of a certain publicly traded company are traded by people who have an access from the not publicly available information of this company, in order to get profit on these operations. Whenever unfair kind of insider trader occurs, it can be considered an activity which is against the law in numerous countries.

This kind of legislation is approved in order to counter the problem of asymmetric information and make the investment situations fairer to an average investor. Also, there can exist stock trading by insiders which is performed with no access to non-public information. This latter kind of insider trading is permitted by law but heavily regulated. As an input of the question, we learn that Harriet, the accountant of the mentioned company, has heard of the implementation of a new drug. In case this information is confidential, it means that benefiting from it would be illegal on the side of an employee. However, another possible option is that this information is somehow publicly available, and Harriet became aware of what is known by other investors in the market. In this latter case, there is no problem if the accountant buys or sells stocks. The moral obligation of Harriet in case the information she overheard is confidential, is to keep it confidential. In case Harriet decides to buy the stocks of a company where she works, she has to adhere to the legal framework. That is, she will have to report this to the SEC by filing the Form 4.

She also has to make sure that she does not break the law by benefiting from confidential material information.
a) An article about insider trading (Steinberg 2015) is concerned with the events in the private-equity company TPG Capital, which is accused of executing engaging in insider trading. A former employee of the company, together with his cousin, are assumed to be trading the firm’s stock basing on the insider information about mergers of the TPG, and SEC has started civil legal proceedings regarding the situation (not the company itself, but the ex-employee). Furthermore, a wife of the above-mentioned employee still serves as a private equity professional in the Beijing office of TPG. Illegal profits of $300 thousand resulted from the assumedly illegal trading. The stocks had been bought prior to the public announcement of the merger of the company. It is said in the article that TPG capital is actively cooperating with SEC in the case.
b) In my opinion, the situation described in the article is clearly an instance of insider trading, as it is highly unlikely that the ex-employee of the company made profits from the merger by luck, given that his wife possessed respective internal non-public information.

Question 2

In order to answer question 2, I have chosen to look at the financial results of Starbucks, a …

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