Lou Hoskins is the CFO of Gold Coast Mining Corporation. Preliminary analysis of
ID: 2538555 • Letter: L
Question
Lou Hoskins is the CFO of Gold Coast Mining Corporation. Preliminary analysis of the current quarter's financial statements shows a significant decrease in the company's profitability. Lou owns a significant amount of Gold Coast Mining Corporation's stock and is afraid that the value of the stock will decrease after the financial statements are released to the public. In an effort to mitigate his losses, Lou sells half of his stock before the statements are released to the public.
Discuss whether or not Lou's actions are ethical.
Are there any potential consequences to Lou's actions and if so, who would be affected by these consequences?
Explanation / Answer
Solution: This activity is totally illegal. If any company executive, manager, director and officer etc make huge buying and selling the stock of the company on the basis of the private information which is not disclosed in the public, then doing so is totally become the case of insider trading and hence it is illegal.
Such activities promote inefficiency and unfair competition in the market as well as affects investors confidence and interest in the stock market. As per ethics as well as laws, the director, officer or executive cannot make such investments by exploiting private information which they have already got in advance.
As per SEC guidelines, if the transactions are made with intimation to the SEC then it is legal otherwise it is illegal and unethical too.
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