Comet Corporation has just invented a new cure for the common cold. It has decided not to release this information to the public until such time as it can file a patent application. Sam, a director, buys 10,000 shares of common stock on July 27 at $50/share, one week before disclosure is made. On August 3, after the disclosure is made, the stock rose to $100 a share and Sam sold all of his shares.

Please answer the following:

1) Using the slide on "Insider Trading," is this information material? Why?

D 7777 You do not have to be \"inside\" the company to violate insider trading rule information you are using to trade is material Why is it important to regulate insider trading? Illegal because it gives the violator an important advantage over the general public and other shareholders Who is an insider? Individuals who receive private information that is material and who does not refrain from disclosing it to other parties. What is material information? Insider Trading Change in status of litigation against the company Change in dividends Contract for the sale of corporate assets or purchase of assets New product, process, or discovery Significant change in the financial status of the company Theories SEC uses to apply to insider trading b Misappropriation Theory > Individual wrongfully acquires (\"misappropriates\") and uses inside information for trading for their personal gain, can be held liable for insider trading P Ti pper/Tippee Theory > Individual acquires material inside information as a result of an insider's breach of duty has engaged in insider trading The WH Framework for Business Ethics L0 2-5 Analyze business decisions using the WH framework. A useful set of ethical guidelines requires the recognition that managerial decisions must meet the following primary criteria (Exhibit 2-6): Exhibit 2-6 The WH Process of Ethical Decision Making 1 . wWHO (Stakeholders): Customers Owners or investors Management Employees Community Future generations 2. HHOW (Guidelines): Public disclosure Universalization Golden rule 1. The decisions affect panicular groups of stakeholders in the operations of the rm. The pertinent question is, thus7 whom would this decision affect? 2. The decisions must meet the standards of action-oriented business behavior. Managers need a doable set of guidelines for how to make ethical decisions. Who are the Relevant Stakeholders? The stakeholders of a firm are the many groups of people affected by the firm's decisions. Any given managerial decision affects, in varying degrees, the following stakeholders: stakeholders The groups at people affected by a firm's decisions. 1 . Owners or shareholders. 2. Employees. 3. Customers. 4. Management. 5. The general community where the rm operates. 6. Future generations. Managers should make sure they consider all relevant stakeholders when they engage in ethical reasoning