Interpreting Financial Information: Insider Trading and Legal Ramifications

Running head: INTERPRETING FINANCIAL INFORMATION
INTERPRETING FINANCIAL INFORMATION
Name of the Student
Name of the University
Author Note

1INTERPRETING FINANCIAL INFORMATION
Question 1
Part C
Issue
Jess an accountant at a pharmaceuticals company “We Fix All Ltd” discussed various
concerns regarding one of her company’s leading products during a dinner with her brother Cam.
These concerns were related to test results of the product. Jess stated that there would be a major
investigation regarding this and the news has not been officially released yet. This is bound to
effect share value and thus her parents considered selling all the shares they owned in her
company. The issue here is if this amounted to insider trading and the ethical and legal
ramifications of the same.
Law
Insider trading refers to the practice of disclosing a company’s inside information which
may have an effect on the company’s share prices. The Corporations Act, 2001 provides for
protection of inside information by prohibiting the divulgence of the same from a person
possessing it (Denis and Xu 2013). This is defined in Section 1002G. Section 1002G (1) (a)
defines insider information as information that would not be generally available to public but if
such information was made available to the public then it can be presumed have a substantial
effect on share prices (Dai, Parwada and Zhang 2015). Section 1002G (3) (a) puts a prohibition
of divulgence of such information to third parties who may deal in such securities (subscription,
purchase, sell, enter into agreements etc) (Thompson, 2013).