Your question goes right to the heart of ethical dilemmas faced by employees of publicly traded companies. Many large, publicly traded companies offer employees an opportunity to own stock in their employment place as an incentive to manage the company's resources more efficiently and as a benefit.

As the case is presented, the employee may have a fiduciary responsibility to other stockholders and potential investors who do not have access to the information the employee has. Fiduciary responsibility is a legal term. The simplest way to explain fiduciary duty is that employees have a legal requirement to act in the best interest of investors. In the example, the employee has inside information regarding a significant change in business that will probably increase the value of company stock. If the employee uses the information by investing personal funds in company stock purchases, the employee is taking unfair advantage of other stock owners not privy to this information.

If the size of the employee's stock purchase is significant, the employee will violate insider trading regulations. Insider trading no doubt frequently occurs in many publicly traded companies without being discovered or prosecuted by Federal or State officials. This generally occurs because the SEC only investigates complaints. Due to a large number of publicly traded companies, the SEC does not have the resources to investigate every stock transaction. Nonetheless, insider trading is a serious offense. It can earn the offender a hefty fine, as well as time in prison. Insider trading is a breach of fiduciary responsibility. There are many different legal aspects of insider trading, but they can be summarized in two main conditions that determine if a person violates insider trading laws.

The first is the timing of the stock trade. In the case example, the employee was given 24 hours notice of FDA approval. The employee has advance knowledge of a potential action by the FDA that will increase the stock value. The second condition is the public availability of the information. The information was not disclosed publicly. Potential investors do not have the advantage of the employee's knowledge to ascertain if they should invest. By these facts, it appears the employee is engaging in an illegal stock transaction.

The best advice to the employee is that the employee should wait for the public announcement and invest in the company stock as soon as the market opens. The potential legal ramifications of not waiting are severe, and the employee's reputation will be damaged should they do otherwise.