Bobby Case Discussion

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Read the case provided and answer the accompanying questions.

Bobby is an employee of a publicly traded corporation, and holds stock and stock options. As a
member of the product development team, he has been working on the design of a new product at
the company. For its part, the company has been pinning most of its future economic hopes on the
success of the release of the product. However, the development of the product has not gone public
yet. The company is keeping the entire project a complete secret until it releases it publicly. The
company has been so secretive about the new product that no one but Bobby knows the release
date yet. When Bobby realizes this, he decides to use this information to profit heavily by purchasing
as much stock as he can afford in the company right before the product goes public. Then, when the
stock prices rise after the successful release of the product, he plans to sell it all.

1. What kinds of information are considered “material information” when discussing insider
trading? Would the information Bobby used be considered material?

2. Suppose Bobby decides to share this information with his best friend Brenda so she can
make some money, too. What is the tipper/tippee theory? In this case, who is the tipper and
who is the tippee? Is Brenda guilty of insider trading too?

3. What are the penalties Bobby could face for insider trading?

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