Caroline is riding the elevator when she overhears two men talking about a proposed merger.It seems that Strawberry Corporation is going to acquire all the stock of Maple Co.Caroline asks the two men what they are talking about,and they say that when this news becomes public,Maple Co.'s stock will increase dramatically in price.They tell Caroline that this is private information and that she is not to tell anyone.Caroline buys some Maple Co.stock.Several months later,after the merger is announced,Caroline sells her stock for a large profit.Assuming all the information Caroline had was material,nonpublic information,which of the following best describes Caroline's situation?

Question

Quizplus · Accepted Answer

Caroline has probably violated the 1934 Securities and Exchange Act, specifically the insider trading provision. Although she is not an insider, she obtained material nonpublic information from the two men, which she used to make a profit in trading Maple Co. stock. The fact that she did not know the men she overheard is irrelevant, as she still used private information to trade. Additionally, the fact that she had heard the main points of the information before asking about it does not make it public knowledge. Caroline's actions fall under the definition of insider trading and are a violation of the 1934 Securities and Exchange Act.

Caroline Is Riding the Elevator When She Overhears Two Men