The stock market laws do not ban individuals from purchasing shares from the companies that they work for. Consequently, employees of a company including the management are allowed to purchase stocks from a company they work for if it is part of their investment plans. Nevertheless, the practice raises some ethical implications because some employees might take advantage of information they have and not available in public domain to either buy more shares or sell depending on the profitability patterns of an organization. Despite inside trading being legal and a chance for employees to have a passive income without risking their investment, it raises some ethical implications on their professionalism. In this case, Harriet has information that New World Pharmaceutical will substantially benefit from a drug being manufactured and she intends to purchase some shares to benefit. Even though insider trading is legal, Harriet will breach the trust and confidence New World Pharmaceutical’s management has on her by exploiting information not on public domain to pursue her individual interests.
Harriet’s Ethical Responsibilities
Accountants working in public and private firms have an ethical obligation of ensuring that they perform their jobs to precision and utilize due diligence when making critical decisions influencing the productivity of an organization. Harriet work’s for New World Pharmaceuticals where her role include tracking development spending and research. The existing controversy is on whether it is ethical for her to purchase some shares from the company because she discovered a certain drug being manufactured will enhance the productivity of the organization. Harriet is allowed to purchase some shares from New World Pharmaceuticals and benefit from the profit that the organization is about to generate despite being its employee. There is no existing policy that bans insiders from purchasing shares since they are sold in the stock market and not directly from the company. Hence, Harriet is justifiable to consider purchasing shares from the company she works for because it is a great investment that will generate some profit. Moreover, being an employee of the company, she is likely to purchase the shares at a discounted price, which will increase the profitability margin.
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Nevertheless, an insider purchasing shares from a company that one is working raises some ethical concerns. Firstly, a scenario where an insider purchases shares from an organization involves a breach of trust and confidence from the employee (Eisenberg, 2017). New World Pharmaceuticals have given Harriet the responsibility of researching and tracking development expenses in the organization. Evidently, she executes her duties well because she has learned about the new drug being manufactured and the possibility of it being profitable for the company. Purchasing the shares after accessing this information breaches the confidentiality the management has on her because she has personal interests. Secondly, the activity also involves materializing of information that is yet to be publicized (Schipani & Seyhun, 2016). It would raise concerns in the Security Exchange Council to have Harriet purchase shares from the organization yet she has not done so in the past. It will be an indication that she has information that the public is not aware about. Subsequently, it would be recommendable if Harriet chooses to wait until the information about the new drug is made public before she can purchase the shares because this will not raise suspicions about her activities. Notably, the situation would be different if Harriet was actively involved in the stock market with other organizations.
Implications
Insider trading might trigger legal implications on Harriet depending with how the management interprets the act and the likely impact it might have on the organization. Nevertheless, Harriet can only be found guilty if she engages in misappropriation of resources in the organization, which includes the information that Harriet collects as she executes her duties and responsibilities. Moreover, such a practice is unethical because investors in the stock market dos so without accessing any information that might influence an individual’s investment decision. Therefore, purchasing shares before the information about the new product being released into the market is a violation of principles involved in the stock market. However, Harriet has a responsibility of an individual to stand up and shun the likelihood of engaging in purchasing the shares until the public gets information about the new drug. Nonetheless, Harriet will benefit from the decision to engage in the stock market because she will minimize risks of incurring losses because the organization will generate profit and pay higher dividends. Therefore, the decision to engage in insider trade will lead to personal growth and development for Harriet.
Conclusion
Engaging in insider trading is legal because there is an absence of policies that restrict employees from purchasing shares belonging to their own organizations. Therefore, Harriet’s decision to purchase stock from New World Pharmaceuticals is justifiable. However, in her case, she will breach the trust and confidence the organization bestowed on her as she executes her duties and responsibilities. Furthermore, she will also take advantage of materials not publicized to achieve her personal interests. Consequently, even though she will achieve personal financial growth by investing in the shares, she will infringe ethical responsibilities in her profession because she will be taking advantage of being able to access confidential information. Hence, it would be recommendable that Harriet waits until the New World Pharmaceutical’s management publicizes information about the new drug before she can purchase some stock. Even though she will still benefit, she will not raise suspicions about her professionalism.
References
Eisenberg, J. (2017). Insider Trading Law after Salman . Corpgov.law.harvard.edu. https://corpgov.law.harvard.edu/2017/01/18/insider-trading-law-after-salman/
Schipani, C., & Seyhun, H. (2016). Defining “Material, Nonpublic”: What Should Constitute Illegal Insider Information?. Fordham Journal of Corporate & Financial Law , 21 (2), 327. https://ir.lawnet.fordham.edu/jcfl/vol21/iss2/3/
