An investment advisor has received an order to buy 1,000 coffee contracts for her client. The client, a senior weather analyst at Environmex, a private weather forecasting service, told her that he had just seen the latest long-range satellite weather data for Brazil that indicated a strong likelihood of frost in the coffee-producing regions. Frost would kill the coffee plants, seriously reducing the supply of coffee, which in turn would lead to an increase in price of the contracts. The information would be made public in a day or so. She thought to herself, This client has been pretty accurate with these forecasts; maybe it's time I started telling my other clients and put in some of my own capital. The main pedagogical objective of this case is to explore the definition of, and responsibility for, insider trading. The situation in this case is intentionally highly ambiguous. The question When is it appropriate to use information not widely available to the market? should be the main focus of student debate. Other ethical issues include confidentiality and using corporate information for personal use.
Finance and Insurance
Canada, Small, 1994
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