Medi Corp is a corporation that deals in the manufacturing of medical devices. I
ID: 381365 • Letter: M
Question
Medi Corp is a corporation that deals in the manufacturing of medical devices. It has just received a patent from the U.S. Patent and Trademark Office for one of its surgical robotic knee devices. The patent is for the purpose of use in full knee replacement surgeries, which was stated on the patent’s application. For part of the manufacturing process, Medi Corp uses Tech Co. to assemble the computer components that run the robot. Tech Co. is a computer company that manufactures a lot of the computer components for several medical device companies in the U.S.
Medi Corp has been considering making a bid to acquire Tech Co. If Medi Corp acquires Tech Co., the transaction would likely be around $100 million dollars. Tech Co. is one of only three companies in the U.S. that manufactures and assembles these computer components for medical devices, and is the biggest of the three companies that offer these services, with the other two companies several million in revenue behind Tech Co. Moreover, Medi Corp. is considered a leader in medical device manufacturing in the U.S. Both companies are publicly traded companies.
Tech Co.’s board of directors are willing to approve of a merger with Medi Corp. Rebecca is on the board of directors for Tech Co. She tells her husband that he should consider purchasing Medi Corp stock. Rebecca does not tell her husband any of the confidential information of the potential merger with Medi Corp., but her husband does know that she is on the board of directors at Tech Co. and that Medi Corp is a company Tech Co. does business with. Bob is an employee of Tech Co. He has been courted by Comp Inc., one of the competitors of Tech Co.
Bob has decided to leave Tech Co. for a senior placement at Comp Inc. At Tech Co., Bob works on the manufacturing of these computer components for Medi Corp. At Comp Inc., he will be in more of a management position, determining which companies Comp Inc. should be doing business with, and managing those employees that are in the manufacturing facilities.
Please answer the following question and provide legal reasoning: Do you see any potential legal issues with Rebecca and her husband if her husband purchases stock in Medi Corp before Medi Corp merges with Tech Co.? Please fully explain your answer for Rebecca’s, and her husband’s, individual situations.
Explanation / Answer
Yes, Rebecca is directly involved in what is called an insider trading, as she is having insider information about the deal.
For Rebecca this is gross violation of the position she holds to take advantage and legally prohibited.
For her husband, Bob the condition is different independently he is not at risk, as
But as a family both of them have direct involvement and any purchase of share beyond a certain amount leads to doubt in the enforcing authorities of insider trading and benefitting from it.