Question

Jan is an attorney at a law firm and she knows information about change in the status of litigation against one of the corporate clients of her firm. She knows that the company is in huge legal trouble and is going to settle for billions of dollars, and this will subsequently probably reduce stock prices. So she sells all her stock immediately and tells all her friends with stock in the company to sell as quickly as possible. In this situation, __________________. Answers: Jan used inside material information to make a profit Jan did not engage in insider trading Jan did not use inside material information because the information she had was not important Jan did not use inside material information Jan has the legal right to use this private information for her personal gain in a capitalist society

Answer 1

In the present situation, Jan has clearly indulged in insider trading, getting profits from the material insider information she possesses.

Material insider information is any information which can affect the price of a share of the company and which is not available to the general public.

As the news about the development in the litigation can strongly affect the price of the share of the company and Jan herself holds the shares of the company (which is restricted and normally not allowed in first place), she has not only used that material insider information but also spread that information among her friends about it.

So Jan has used inside material information to make a profit (or avoid a loss, which also implies the same thing).