FINANCE
FIN 350 Module 1: Assignments
Chapter 3 Problems and Issues 5
5. The following situations may be covered by insider trading laws in the United States. Examine each situation described and indicate whether, in your opinion a violation of insider trading laws might have occurred. If you think a violation occurred, what kind of violation was it?
a. The chief financial officer of Start Corporation reads an internal memorandum criticizing the firm’s recent oil field development investments and picks up his phone to call his broker, placing an order to sell his holdings of the firm’s shares when the market opens in the morning.
b. Corren Professional Corporation, a CPA firm, assists Selkirk Industrial Corporation with its quarterly and annual financial reports. Jim Roberts, a CPA with Corren, after reviewing the latest information provided by Selkirk’s CEO, calls a friend and suggests making certain stock and bond trades involving Selkirk’s securities. Roberts will not benefit financially from these suggested trades and refuses to get involved.
c. James Smith works for Cohen and Cooper, a local law firm, and while browsing in his firm’s law library, he discovers a new report from a legal client of his colleague, Roscoe Adams, that predicts serious financial problems if the client proceeds with its recently drafted strategic plan. Smith subsequently discovers discreetly that the strategic plan is to be launched next week. He also learns that Roscoe is selling the client’s stock short through his broker. Smith quietly advises Roscoe not to make the short sale and lets the matter drop.
d. Samuel Joule learns from conversations with Sarah Conklin, a bartender at a local bar, that neighboring Locket Corporation has recently developed a warning device that may help prevent air collisions and may be worth tens of millions of dollars once announced to the public. Neither Joule nor Conklin works for Locket, though he has been dating Miss Conklin. Both of these individuals decide to purchase 1,000 shares of Locket’s stock before Locket holds a press conference to announce the new air collision device. Joule and Conklin will use a bank loan to finance the purchase of Locket’s shares. A wedding is planned if the transaction pays off.
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