Question

Donna, a corporate director, sold 100 shares of stock in her corporation on June 1, 2007. The selling price was $10.50 a share. Two months later, after the corporation Page 544had announced substantial losses for the second quarter of the year, Donna purchased 100 shares of the corporation’s stock for $7.25 a share. Are there any problems with Donna’s sale and purchase? Explain.

Answer 1

Answer:

Yes, this could be considered insider trading.

Explanation:

Insider trading refers to activities carried out in order to benefit from confidential information about publicly traded corporations. Generally speaking, those activities involve buying or selling stocks before some important information is known by the public.

In this case, Donna as corporate director knew that the financial statements would disappoint and therefore the stock price would fall. So she decided to sell her stocks before the public knew about the lower profits, or lower sales, etc.. Then after the stock price fell, she decided to purchase stocks again at a much lower price.