Insider Trading - Significant Facts

Insider Trading

Significant Facts:

Joe Erlich manager of materials has just been knowledgeable of the vital news of his current company Soquel Circuits buying out its adversary Modesto Modules; the only other supplier of the Frampton Framostat. Modesto Modules has built up a market share by offering a functionally equivalent product to the Frampton Framostat at a substantially lower price than Soquel Circuits could. Modesto Modules organization worked in an entirely different manner than Soquel Circuits in that they oran a very efficient, low overhead operation and offered little customer service allowing them to sell their products for cheap. On the other hand Soquel Circuits offered first-rate products obviously at an elevated cost but fully guaranteed and backed their products. Erlich concluded that this buyout would mean Soquel Circuits offering a two rank product line, basically created great revenue through this monopoly they would create upon the Frampton Framostat product. To him job security in the future looked extremely in good health. But Erlich always realized this would cause the company to move to Modesto where overhead was extremely more appealing than that of Soquel. This move did not sit well with Erlich and he definitely knew it would not sit well with his family. His family was dedicated to Soquel. Erlich realized that he could financially gain from this takeover by investing in stock of the company. He knew the acquisition would cause the company stock to sky rocket. All he has to do now is pick up the phone and place the order with his broker. Thoughts of Ivan Boesky whom was charged with illegal insider trading at a million dollar scale years ago ran through Erlich’s mind. Was it ok for him to purchase stock based on his knowledge of what was soon to come. Or would this be an illegal act?

Interested Parties:

The people affected by the decision of insider trading would be Erlich himself in a moral and legal standpoint. Erlich and his family could stand to gain huge financially. Erlich himself could be risking legal action taken against him if the SEC would be wise to the fact that Erlich was aware of the buyout prior to purchasing stock. The company also stands to be affected in the manner of Erlich being prosecuted, shedding a negative light on the company’s reputation. The average stock investor also is affected in the way that insider trading erodes the “level playing” field that is suppose to be upheld in the stock market. Every bit of information is suppose to be made public.

Decision Maker:

Joe Erlich is the decision maker in this situation. To him it becomes a moral issue, which could have legal consequences. Even if no one found out Erlich is still unearthed at the fact that it would be morally wrong to make financial gains upon knowledge that has not been made public.

Issues.

insider trading n. “the use of confidential information about a business gained through employment in a company, to buy/sell stock.. The victims are the unsuspecting investing public. It is a crime under the Securities and Exchange Act,” for which Ivan Boesky and others have been sentenced to