You are studying to be an accountant. During school breaks, you work part-time at a large company that sells its stock on the stock exchange. To help you understand how investments work, you bought 100 shares of stock in this company.
While doing the bookkeeping, you discover the company just had a very bad financial quarter. You anticipate the price for the company stock will fall substantially once that information is made public. You decide to sell your shares immediately to avoid a significant loss. You direct your stockbroker to sell your stocks and are able to complete the transaction before this news gets out.
Have you done anything illegal by selling your stock when you did?
A. No, you are entitled to utilize all information available when deciding whether to buy or sell stock.
B. Yes, it is illegal for an employee of a company to buy or sell company stock.
C. No, shareholders can sell or buy stock anytime they wish.
D. Yes, you will be liable for insider trading based on the misappropriation theory.

Question

16-11-2021
Business

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You are studying to be an accountant. During school breaks, you work part-time at a large company that sells its stock on the stock exchange. To help you understand how investments work, you bought 100 shares of stock in this company.
While doing the bookkeeping, you discover the company just had a very bad financial quarter. You anticipate the price for the company stock will fall substantially once that information is made public. You decide to sell your shares immediately to avoid a significant loss. You direct your stockbroker to sell your stocks and are able to complete the transaction before this news gets out.
Have you done anything illegal by selling your stock when you did?
A. No, you are entitled to utilize all information available when deciding whether to buy or sell stock.
B. Yes, it is illegal for an employee of a company to buy or sell company stock.
C. No, shareholders can sell or buy stock anytime they wish.
D. Yes, you will be liable for insider trading based on the misappropriation theory.

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Martebi Martebi · Answer 1 · 2021-11-22T12:25:19+01:00

Misappropriation theory states that when an individual uses insider information in trading securities has therefore committed securities fraud against the information source. Therefore, Yes, you will be liable for insider trading based on the misappropriation theory.

In the United States, a person who is guilty based on the misappropriation theory can be convicted of insider trading.

An individual is said to be guilty of insider trading when they have acted on privileged knowledge in order to make a profit.

Conclusively, she is guilty as she uses the information obtained from the financial books to her advantage.

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