Your boss has told you that tomorrow the Federal Drug Administration (FDA) will announce its approval of your firm’s marketing of a new breakthrough drug. As a result of this information, you are considering purchasing shares of stock in your firm this afternoon. What would you do?
In publicly traded companies, as part of an employee's benefits, the employee may be allowed to purchase stock in the company at a preset price. However, using proprietary and non-public information that materially affects the value of a stock to buy or sell a stock may violate several state and federal laws.
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...
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