Impacts of Disclosing the Information

Considering the impacts of disclosing the information to the SEC to the company, Natalia, James Lee and his colleagues, he should not do so right away. Instead, he should first discuss the situation with Natalia and try to convince her not to put herself and the company at risk. If James fails, he should then stop her by threatening her with reporting this to the SEC due to ethics and the possible consequences brought out once the illicit act unveils.

The main reason for not disclosing the information to the SEC right away is that this impacts the company, Natalia and James’ colleagues profoundly. Given that they have continuously been supportive of James, disclosing the information without convincing Natalia to stop first would be ungrateful to them. Natalia, the company director, might face serious criminal charges because of insider trading. Besides, his colleagues would also have to suffer from hardships as the company would face large fines, criminal prosecution, or even closure. Another reason is because of James’ own personal interest. Being a husband and a father of two, he could not afford any lapses in income. Disclosing the information to the SEC right away would lead him into similar hardships like many of his colleagues once the company is charged. Alerting Natalia with these possible consequences behind her decision might prevent them from coming into reality.

If Natalia insists, James should stop her by threatening her with reporting the information to the SEC because of two reasons. The first is that insider trading is unethical. It violates the rights of existing shareholders and the good faith of the investing public. Insiders defraud stockholders by withholding material information before selling company stock, undermining the level playing field which is fundamental to the fair functioning of capital markets. Secondly, insider trading is illegal. According to the Securities Act of 1934, fraud in the trading of securities is prohibited.[1]