HR Diaries - An Ethical Dilemma -Is It an Insider Trading?

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Anil was a CFO of a medium sized listed company in India. A CA, MBA (Finance) and a Ph.D. in corporate governance, he is also pursuing LLB in distance education mode. 

Known for his thoroughness, high moral standards, professionalism and very honest character, he was almost a brand in himself. He was always called to deliver session on governance and ethical issues in many reputed B-Schools and other forums. He would also advise many other companies on the best corporate governance practices. He is also a seasoned reader and learner and is known for continuously keeping track of all the latest developments in the economy and his fields of interest.

He has a friend named Jackie. Jackie is an owner of a small company but he has very kin interest in investing in the Indian equities. His knowledge of fundamental analysis and technical was undisputed and many swear by his calls and analysis. He is very intelligent, and has a strong "never give up" attitude that has made him a very successful businessman as well as a share market investor.

Anil and Jackie share a great bonhomie. Childhood friends that they are, they have many things and interests in common. Investing, of course, is one such area. Both of them discuss the share market investment related stuff for hours and hours on weekends and also equally benefit from each other's views and research. 

While Jackie would do a very thorough analysis of fundamentals, Anil would be focusing on qualitative aspects like ESG practices of the company, that have very strong bearing on the value of the listed companies.

Jackie has got some "hint" from third party (reliable) sources that Anil's company is going to announce quarterly losses after a month. The market, in general, expects Anil's company to make profits and most of the analysts and researchers have given a 'buy' or 'hold' call on Anil's listed firm. 

Jackie, the shrewd investor, wanted to confirm this "tip" or "hint". He thought that Anil might be the right person for asking this question. He texted Anil about it and sought his view. 

Anil, on receiving this query from a dear friend, seeking "sensitive" information on the inside news of the company, that may have a strong bearing on the prices of its equity shares, was caught in classic ethical dilemma - should he disclose the information or not? 

The information, that company is going to announce quarterly losses, contrary to market's expectation, was very sensitive in nature. Giving out this to Jackie would land him into jail (insider trading). Not giving information means his friend Jackie might make losses, that he (Anil) could help avoid.

'What should I do?' is the question that nil is trying to find an answer to. After thinking through, he decided that he would not share complete information with his friend Jackie i.e. that the company is going to announce losses. Rather, he would only advise Jackie "to keep away" from his (Anil's) company's share for the time being. That would serve two purposes, according to Anil. One, he would not be indulging into the act of "insider trading" (at least, strictly speaking) and he would also help his friend from making potential losses.

Here is the summary of the whole event:

- Anil is a CFO of mid-sized listed company, and his best friend, Jackie, a seasoned investor, gets to learn two things simultaneously about Anil's company - first is the view of broader market that Anil's company is going to announce profits in this current quarter. The second is, Anil's company is going to announce a loss in this current quarter. Jackie seeks Anil's advice on the "correct" news - if Anil's company is going to announce profit or loss. Anil knows that his company will announce loss, but if shares this information with Jackie, he (Anil) would be ending up in jail, under the charges of "insider trading". Not telling the truth to Jackie means Jackie may make losses. So, he tells Jackie "to keep away" from his (Anil's) company's shares and does not share any other details. 

But still Anil is not sure if his decision is right or not and seeks your guidance on this matter.

What would you suggest?

For benchmark answer, please write to pvariya@gmail.com

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