Integrity of Capital Markets

Red Wine Company ought to have known that an over-supply of grapes from a record harvest in California combined with falling sales volumes in the US and a departure of its key executives would dent its ability to hit stated profit targets, a new lawsuit says.

A statement of claim lodged by a law firm lists a litany of instances such as record grape harvests, prevailing US market conditions, the difficulty in maintaining prices for premium wine and the surprise resignation of a handful of senior executives, especially in the crucial US market, through 2019, and says Red Wine Company should have been aware of and should have tempered their earnings outlook.

There was and was likely to continue to be an added supply of private label wine products in the US wine market; were likely to create a downward pressure on prices in the US wine market going forward, including in the premium wine segment. It was likely to be more difficult for participants in the US wine market to rely on premiumisation to maintain or increase profits.

Red Wine Company said it strongly denied all allegations of wrongdoing and intended to vigorously defend the proceeding.

Briefly discuss the ethical concerns in this story. Is there an argument for insider trading? Please explain.