Linda was president of a publicly traded tractor company, Tough Tractors. Linda became aware that stock in her company would likely increase significantly in value because her company had a contract to purchase the assets of Rough Tractors. The boards of both companies wanted the information kept confidential until the purchase was complete, and a news release was made. Before the news was made public, Linda immediately purchased a significant number of shares in Tough Tractors. Linda also told her friend Frank about the contract to purchase assets although she told him to keep it quiet because it had not been made public yet. Nevertheless, unable to keep a secret, Frank told his brother, George. Frank and George purchased a number of shares of stock in Tough Tractors prior to any public announcement of the sale. After the public announcement
was made and the purchase of assets went through, Linda, George and Frank, all sold their shares in Tough Tractors and made a nice profit.
Have Linda, George or Frank done anything wrong?
Would this be an insider trading violation? I am a little confused with that topic and having a hard time with this review question on my study guide.
Yes, Linda and George did wrong in purchasing the... View the full answer