The Chairman of Bright Star Life and
Casual had a meeting with his broker this afternoon.
During that meeting, the chairman informed the broker
that a story was printed that morning about poor earnings
projections for the company. The broker went back to
his office and notified clients who own Bright Star
Life and Casual. Does this act constitute a violation
of insider trading laws?
a) Yes, the story only appeared that morning.
b) No, the chairman was relaying public information.
c) No, the broker is a professional confidante.
d) Yes, the chairman wasn't necessarily thinking.
The correct answer is b)
Insider trading would include information that is material
and non-public. Certainly, a poor earnings forecast
is information that may be material to the price of
the company's stock. However, the report has already
been made public in the morning news. The broker should
have already known anyway. No crime has been committed.