Tuesday, November 6, 2012

Insider Trading

S. Securities and Exchange Commission and wait the SEC to investigate the matter?

If Hegarty does not take this step, is the chief operating officer of Knox Corporation going to go to the media with his allegement that employees of Mebel, Doran and Comp either were heterogeneous in insider trading? If he does, would this be defamation -- or would the dictation be true?

What changes, if any, should Mebel, Doran and Company make in light of the problem identified in its internal investigation in which an employee in the firm's Mergers and Acquisitions (M&A) division discussed Power-Tie, the company that was the target of the acquisition, with an employee the firm's chance arbitrage (stock trading) group?

Is some form of fundamental restructuring mandatory?

Should Mebel, Doran and Company refund the $2 million advance paying(a) by Knox Corporation for its best efforts to facilitate the acquisition by Knox Corporation of Power-Tie? Would doing so be an admission of guilt? Would doing so result in keeping Knox as a client? Would doing so open the door to demands from other clients for similar refunds relating to failed mergers and acquisitions?

The fiscal statements of Mebel, Doran and Company offer no important insights about this situation. For example, the income statement reveals that in 1986 approximately 6 percent of the in


vestment banking firm's revenues were earned in its Investment banking division, and that about 72 percent of revenues were earned in Interest and dividends. Neither item provides any insight about what Hegarty should do to address the allegation made by the CEO of Knox Corporation. Similarly, the fact that Mebel Doran earned crucial aft(prenominal)wards tax profits for the last five years, including an after tax profit of $151.
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8 million in 1986, does not paint a picture how Hegarty can keep Knox Corporation as a client, deflect a scandal, and address any internal deficiencies in his company.

The cardinal question is whether Mebel Doran's risk arbitrageur did anything unethical or vicious during his or her discussion with the arbitrageur with the other firm. Hegarty knows that there atomic number 18 frequent contacts between such individuals. He also knows that it is the temperament of the arbitrage business that professionals discuss specific companies. After all, that is the line of business they atomic number 18 in. What else would they talk about except for reading and insights about publicly traded companies that one or both of them are interested in?

The same concern can be raised about the financial information provided by Knox Corporation. wise to(p) that Knox had earnings from continuing operations of $54.4 million in 1986 and an after tax loss of $25.8 million does not offer any insights about whether anyone at Mebel, Doran and Company broke the law or violated the company's internal code of conduct or its dinner gown code of business ethics -- assuming such a code exists. Nor does it in
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