You’re sitting poolside sipping on margaritas with your buddy. You’ve always wanted to work together and your buddy says that now would be a good time to do so. You ask, what about your current position. Your buddy, with a few margaritas in his gut, tells you that his current position is uncertain because the company is going to get sold.
What should you not do?
(A) Buy you buddy another margarita
(B) Buy some nachos
(C) Buy stock in your buddy’s company
Steven Masterson chose (C) and that was the wrong answer.
His buddy worked at Dover Motorsports, a public company. The information that the company was getting sold is Material, Non-Public Information. He should have known that the information was confidential and he shouldn’t trade on it.
Instead Mr. Masterson called his investment adviser and directed a purchase of $100,000 worth of stock in Dover Motorsports. Two months later the acquisition was announced and Mr. Masterson made a tidy profit.
At least until the Securities and Exchange Commission got involved and accused Mr. Masterson of insider trading. He disgorged his tidy profit and paid a fine equal to that profit.
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