A working definition of "insider trading" is that it is an illegal activity that involves trading by management, major shareholders or employees of a firm using information that is not yet publicly available. A working definition of the term "investment banking firm" is that it is a company that facilitates capital restructuring including initial public offerings, as well as mergers, acquisitions and leveraged buyouts. A working definition of the expression "Chinese Wall" is an imaginary wall that separates the research department from other departments at an investment banking firm. A "Chinese Wall" denotes a commitment by a firm dealing with publicly traded securities not to disclose or confidential information. In the Mebel, Doran and Company case, the questions facing its President, Harvey Hegarty, include these:
To what extent did his firm contribute to the run up in price of the Power-Tie company?
To what extent did the employees of his firm act unethically?
Did anyone in his firm act illegally, and if so what liability does the firm face, and what should he and the company do with the person or people involved?
Should Mebel, Doran and Company notify the U.S. Securities and Exchange Commission and ask the SEC to investigate the matter?
If Hegarty does not take this step, is the CEO of Knox Corporation going to go to the media with his allegation that employees of Mebel, Doran and Company were involved in insider trading? If he does, would this be defamation -- or would the statement 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 risk arbitrage (stock trading) group?
Is some form of fundamental restructuring required?
Should Mebel, Doran and ...