Question of the Week

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.

Answer:

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.

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