Insider Trading Legalities Explained

Summary

Insider trading involves trading a companys stock based on material nonpublic information (MNPI). In this scenario, the information about the drug trials potential failure, shared by your brother, is considered MNPI. Acting on this information before it became public likely constitutes insider trading under SEC regulations. It is advisable to consult a lawyer for detailed legal advice on this matter.

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Can you define insider trading and what constitutes MNPI?
Hey ****!
Insider trading involves buying or selling a company's stock based on non-public, material information. MNPI (Material Nonpublic Information) is:
- Material: Information that could influence an investor's decision.
- Nonpublic: Information not available to the general public.
Any more questions on this topic?
You, a senior portfolio manager, rarely speak with your brother, a senior scientist at biotech firm MBC, where he's involved in a late-stage drug trial. During a brief call to plan a visit, you casually ask about his work. He replies, “So-so. Things are not great on one of my big projects,” before the call drops. The next day, you inform two portfolio manager colleagues, and all three of you decide to sell MBC stock from the portfolios you manage. Two weeks later, MBC announces the drug trial’s failure, causing its stock to drop significantly, sparing your clients $* million in losses due to your preemptive sale. Has insider trading occurred? Explain why or why not.
Yes, insider trading has occurred. The information shared by your brother, although vague, could be considered material and nonpublic, as it pertains to the potential failure of a major project. Acting on this information before it was public likely constitutes insider trading under SEC laws. You should consult a lawyer for detailed advice.
Any other questions on insider trading or related issues?