Read the following scenario and answer the question in 5-7 sentences. You are a

Question

Read the following scenario and answer the question in 5-7 sentences.

You are a chief compliance officer at a large manufacturing company. You learn that Brittany Jones, a long-time manager, told Louis, a friend of hers, about the planned construction of a new facility, which is being built in order to take advantage of newly-acquired and lucrative production contracts. This information is confidential. Brittany told Louis to keep the information to himself, but instead Louis told his friend, James. James traded on this information and profited. Evaluate whether Brittany, James, or Louis could be liable for insider trading. Also consider what business policies would help prevent insider trading in the future.

Explanation / Answer

Yes, in my opinion Brittany, James, and Louis are liable for insider trading. This is because Brittany shared confidential professional information of the organization with her friend Louis. Such information should not have be leaked outside the organization since it is confidential in nature. Further Louis passed on the information to his friend James who benefitted from the information by trading. This is a serious case of insider trading and would not have been possible if Brittany had not shared the information in the first place.

Business policies that would help prevent insider trading in the future:

1. Blackout periods: Companies can announce blackout periods where the directors, employees and other company representatives are barred from trading, usually when crucial announcements are to be made. This prevents the employees in indulging in insider trading.

2. Clear purchases with Chief Legal Officer: Most companies require the purchase of shares by the senior representatives of the company or the directors etc. to clear them with the Chief Legal Officer to avoid the violation of rules and regulations. This is a good practice to prevent insider trading.

3. Education programme: Companies can organize education programmes for the employees wherein it can educate the employees about the ill effects of insider trading and why it should be avoided. This results in discouraging the employees for such activities.

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