This tongue-in-cheek insider trading “exam” was posted on the Cassandra Does Tokyo blog. Click on the link for the full exam.
3. What statement most closely approximates the insider-trading equivalent of the US Military’s “Don’t Ask – Don’t Tell” policy?
(a) “Your BEST ideas…Just give me your ‘BEST, MOST CERTAIN, CAN’T LOSE IDEAS’”
(b) “You’re paid to perform: how you do it is your own business”
(c) “Whatever you do, DO NOT bring me into your circle of trust…it’s enough that I trust YOU”
(d) “We PAY to be the first call before the first call…”
(e) “The rules are: No tips by e-mail, no tips on recorded lines”
(f) All of the above
5. Complete the following phrase: Dumpster diving as a means of gathering material non-public information is NOT illegal because:
(a) they were throwing the away the information anyway
(b) it is public in that anyone could, if they had the same grit and determination as me, dumpster dive
(c) Any simpleton knows to shred confidential information with a powerful cross-shredder if they don’t want someone else to read it
(d) most companies don’t own the dumpsters. The dumpsters are property of the landlord or the contracted refuse company
(e) It is already public as external lawyers, accountants, bankers, advisors, as well as cleaners, printers, personal assistants, legal & compliance, the CEO, and all manner of other staff members have already disseminated it to friends and family
7. Which of the following was accused of insider trading but did not or has not gone to jail NOR admitted guilt?
(a) Doug DeCinces and Eddie Murray
(b) Art Samberg
(c) The Wily Brothers
(d) Mark Cuban
(e) Ed Brogan
(f) None of the above
(g) All of the above
9. Matthieu, a hypothetical portfolio manager at a large and very profitable hedge fund, discusses a potential trade with his detail-oriented boss. The trade is, for the avoidance of doubt, obviously based upon material non-public information murkily obtained from off-limits sources in ways that contravene existing laws, even by the dubious standards of expert networks. From the point of view of Matthieu’s Boss, which of the following statements would most likely constitute “plausible deniability” in regards to the conversation:
(a) “My wife was calling me every two minutes nagging me with questions about whether bathroom #15 should be “periwinkle” or “talcum violet” so I really didn’t hear a word he said”
(b) “Matthieu? Never heard of him”
(c) “I thought he was dead – at least he will be”
(d) “I got 700 people working for me and you know what….they all look the same to me”
(e) “When you have more than five kids let’s see what YOU can remember”
(f) “We’ve got a firm-wide policy NOT to use material non-public information. I’ve got [insert double-digit number here] compliance officers, and [insert another double-digit number here] externally retained lawyers making sure that’s the case. Experts we use to supplement our research sign agreements that they won’t provide information in violation of existing laws. My guys know that, and they know better than to tell me if in a moment of weakness or greed, they transgressed. THWWAAACK! Ball in your court…”
10. You are a portfolio manager with a LARGE holding in a UK-based drinks company you like. The company and its bankers have privately contacted you wishing to sound out existing shareholders about “possible changes to the firm’s capital structure to improve it’s balance sheet”, which you suspect, but haven’t been definitively informed, can only mean the issuance of shares. They want to arrange a conference call. Do you:
(a) Sell your entire position, then ask questions later
(b) Sell your entire position, then inform compliance
(c) Join conference call, confirm suspicions, THEN sell your entire position
(d) Join conference call, confirm suspicions, sell entire position, AND go short
(e) Join conference call, confirm suspicions, sell your entire position crushing the stock, AND go short and then ask compliance if that was OK?
11. It’s Christmas time. An old friend on the sell side “in a position to know” calls you bearing a “gift” and tells you that a major Japanese bank is planning a very very VERY large convertible bond issue that is in the final stages of preparation. Do you:
(a) politely decline the “gift” on the basis of ethics
(b) thank him by moving as much PB business as you can to the bank
(c) take down as much stock as your lines will let you borrow
(d) sell-short as much stock as you can whether you can borrow it or not
(e) sell-short as much stock as you can in ALL the Japanese banks whether you can borrow it or not
(f) All of the above
(g) None of the above
12. As a Member of Congress, sitting on important committees, you occupy a powerful position in the world of finance, and have a fiduciary responsibility to your constituents and the bodies you serve. You have just finished attending a briefing from the Chairman of the Federal Reserve Board and the Treasury Secretary about the impending disclosure to the public of the perilous state of a number of the largest banks. Do you
(a) Immediately sell all of your stock mutual funds
(b) Immediately sell all of your shareholdings of perilous banks
(c) Buy shares in Goldman Sachs
(d) Both A&B
(e) Both AB&C
(f) Do nothing yourself, but tip-off journalists that the Reps from the other party might just do something self-servingly unethical with the information despite there not being a prohibition against it
16. When speaking to a source of material non-public information, what is the MOST important question to ask:
(a) How certain are you?
(b) Where did YOU get the information?
(c) When is the event likely to happen?
(d Is this conversation being taped?
(e) Are you wearing a wire
18. Which of the following is the most effective legal defense against spending time incarcerated for insider trading breaches:
(a) Ernest Saunder’s “I can’t remember, I must have Alzheimers defense”
(b) Peter Young’s “I’m Crazy As a Coot” defense
(c) The audacious “I am a Time Traveller” defense
(d) The SAC “Trading is a very complicated Mosaic” defense
(e) The SAC “I trust my Subordinates” defense
(f) The Einhorn “I specifically asked NOT to be an insider” defense
(g) The Sergeant Shultz “I Know Nothing…NOTHING” defense
Extra Credit#2: Please provide your professor a current real-world example of Material Non-Public Information including relevant dates, and actions, preferably gleaned from your work experience, family or professional connections, or friendly social network, that you believe will impact the company’s stock price accordingly, and why and in which direction you think it will move. Please include the details and nature of your source material.(NB: If providing this information in writing creates a moral dilemma for you, then you are encouraged to leave a detailed message on my private answering machine, where the message will be promptly deleted).Subscribe to Integrity ResearchWatch by Email or in an RSS/XML reader