Question

Your former employer currently is being sued by its customer, Brozdang, Inc., for selling it defective merchandise. Brozdang is a publicly traded corporation.

You worked as a staff accountant for your former employer for about one year, but quit a few months ago because you thought that he was a "lyin', cheatin' piece of dirt." This employer's reputation for being unethical was well known in the industry.

You expect Brozdang to win its lawsuit and recover enough damages to move its stock price upward. As a result, you bought outstanding shares of the customer's stock in anticipation of it winning its lawsuit.

Was it legal and ethical for you to make this stock purchase?

Answer 1

As a previous staff accountant of the company that Brozdang, Inc., is litigating for selling it defective merchandise the staff accountant had right of entry to the personal information concerning the former employer’s business practices. The expectation that Brozdang Inc., will win the lawsuit affecting its stock price to upsurge is not organic, it’s based on insider information not accessible to the public.

By making a stock purchase founded on having an prejudicial information benefit over others, public assurance in the marketplace is weakened. This outcomes in fewer people wanting to join in in the stock markets making it more problematic for companies to raise capital in the long run.  

The purchase of this stock meets the meaning of insider trading and was illegal. It was also not an moral purchase as the former employee had an discriminating advantage.