Hi all,
I have encountered the following question:
“Mike CFA, has done research on a company and based on his analysis concludes that the company is a take over target, he decides to act on this information. Just before he acts on the information he receives material nonpublic information about a takeover of the company. The next day he makes the trade.”
Is he in violation or not??? He first found the information by himself and after that he received the nonpublic one…
That’s a horrible last name.
And, not only is he in violation, that’s insider trading and illegal. Sucks to be Mr. CFA.
He also violated standards by using CFA as a noun.
The inside information was decisive for his trade, thus a violation. The problem here is that due his good research he concluded that the company is a takeover target, however, the takeover announcement can be done tomorrow, next week or a year ahead. If he receives the inside info of a true takeover to happen and he acts on that information, then he is in violation.
Hope this helps.
^Once he finds out insider info he can’t act regardless. It doesn’t matter if he was 100% sure he was going to make the trade beforehand. The SEC can’t regulate what you were thinking. They can regulate when you received info and when you placed a trade.
We can act after official announcements / press releases, despite we received material non-public info.
The key factor to assess in this example is the timing of action, he was “sure” to invest beforehand, but once he received the sensitive info he acted immediately (presumably before the official announcement). There is the violation.