Pablo (an Australian citizen and recent MBA graduate from an USA Ivy league university) is in his fifth month working as an Associate at Top Investment Bank (“TIB”) in New York City. He is working on a merger/acquisition transaction involving “Amazing American Chicken Inc.” (“AAC” - an US publicly traded company on the New York Stock Exchange), and “Awesome Australian Beef Ltd.” (“AAB” - an Australian incorporated company publicly traded on the New York Stock Exchange). Pablo works from home on Mondays, and one day his girlfriend, Fiona, while assisting the house maid cleaning the study, accidently saw on Pablo’s computer screen details about the merger/acquisition. Fiona’s biological father (but divorced from her biological mother) is the CEO of AAB. Fiona was shocked to see that her father could be out of the job and if so, this will trigger a clause in the family trust fund which will result in the end of the generous stipend she receives. Fiona, in a panic, Group FaceTime call her stepbrothers, Sam (Retail Stock Trader, living in Sydney, Australia) and John (Financial Advisor, living in Los Angeles, USA) and told them of what she saw and that their stipend may end also. Sam purchased US$50,000 shares of AAC. John purchased US$50,000 shares of AAB. 9 months later, Sam sold his AAC shares for 2X the purchase price and John sold his AAB shares at the same time for 4X the purchase price. Flag question: Question 19Question 190.21 ptsWho is/are likely or may be liable for insider trading under US Law? (select all, if any, that apply)Group of answer choicesFionaSamPabloJohnAACTIBAAB
Question
Pablo (an Australian citizen and recent MBA graduate from an USA Ivy league university) is in his fifth month working as an Associate at Top Investment Bank (“TIB”) in New York City. He is working on a merger/acquisition transaction involving “Amazing American Chicken Inc.” (“AAC” - an US publicly traded company on the New York Stock Exchange), and “Awesome Australian Beef Ltd.” (“AAB” - an Australian incorporated company publicly traded on the New York Stock Exchange). Pablo works from home on Mondays, and one day his girlfriend, Fiona, while assisting the house maid cleaning the study, accidently saw on Pablo’s computer screen details about the merger/acquisition. Fiona’s biological father (but divorced from her biological mother) is the CEO of AAB. Fiona was shocked to see that her father could be out of the job and if so, this will trigger a clause in the family trust fund which will result in the end of the generous stipend she receives. Fiona, in a panic, Group FaceTime call her stepbrothers, Sam (Retail Stock Trader, living in Sydney, Australia) and John (Financial Advisor, living in Los Angeles, USA) and told them of what she saw and that their stipend may end also. Sam purchased US50,000 shares of AAB. 9 months later, Sam sold his AAC shares for 2X the purchase price and John sold his AAB shares at the same time for 4X the purchase price. Flag question: Question 19Question 190.21 ptsWho is/are likely or may be liable for insider trading under US Law? (select all, if any, that apply)Group of answer choicesFionaSamPabloJohnAACTIBAAB
Solution
Under U.S. law, insider trading is a crime that involves trading a public company's stock based on material, nonpublic information about the company. The individuals who can be held liable for insider trading include not only insiders such as company executives but also outsiders who obtain insider information and use it to trade. In this case, the individuals who may be liable for insider trading are:
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Fiona: She saw confidential information about the merger/acquisition on Pablo's computer screen and shared it with her stepbrothers. Even though she did not trade any shares herself, she could still be held liable for tipping off others.
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Sam: He used the insider information he received from Fiona to purchase shares of AAC. He then sold these shares for a profit once the information became public.
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John: Similar to Sam, John used the insider information he received from Fiona to purchase shares of AAB. He also sold these shares for a profit once the information became public.
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Pablo: Although he did not share the insider information intentionally, he could still be held liable for insider trading because he failed to keep the information confidential.
The companies AAB, AAC, and TIB are not likely to be held liable for insider trading in this scenario, unless it can be proven that they were somehow involved in the sharing or use of the insider information.
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