Business Ethics

What is insider trading anyway?

Consider the following:

Many years ago, a student in a consolidated financial statements class came to me and said that Grand Central (a multistore grocery and variety chain in Salt Lake City and surrounding towns and cit- ies) was going to be acquired and that I should try to buy the stock and make lots of money. I asked him how he knew and he told me that he worked part-time for Grand Central and heard that Fred Meyer was going to acquire it. I did not know whether the student worked in the accounting department at Grand Central or was a custodian at one of the stores. I thanked him for the information but did not buy the stock. Within a few weeks, the announcement was made that Fred Meyer was acquiring Grand Central and the stock price shot up, almost doubling. It was clear that I had missed an opportunity to make a lot of money. ..I don't know to this day whether or not that would have been insider trading. However, I have never gone home at night and asked my wife if the SEC called. From "Don't go to jail and other good advice for accoun- tants," by Ron Mano, Accounting Today, October 25, 1999.

Question: Do you think this individual would have been guilty of insider trading if he had purchased the stock in Grand Central based on this advice? Why or why not? Are there ever instances where you think it would be wise to miss out on an opportunity to reap benefits simply because the behavior neces- sitated would have been in a gray ethical area, though not strictly illegal? Defend your position.