Asked by Estefania Carlos on Jun 23, 2024
Verified
Gunnar and his brother Henrik were directors, officers and each 26% shareholders in Evergold Resources, a mining exploration company with claims in Indonesia. Evergold was undertaking exploration on its claims when Henrik's laboratory results on site yielded the existence of a major gold find. The result was a dramatic departure from other samples and seemed to indicate an isolated high-quality vein of gold. Gunnar, in Vancouver, released a press report as to the find. The shares of Evergold began a dramatic run-up in price as a result. Henrik double-checked his work, and the results (though very exceptional) were correct. A further week later, Henrik discovered an anonymous note in his tent at the camp that one of his locally hired laboratory geologists had been involved in a tampering scandal some years before. He telephoned this information to Gunnar, who advised Henrik to thoroughly check the results again. Gunnar immediately sold a third of his own shares in Evergold and reported his trade. The insider trade alarmed the market, which also promptly sold Evergold, depressing its price. The anonymous note proved baseless, and on subsequent announcement of the repeated test confirming the gold strike, Evergold shares rebounded to their previous level. Gunnar was obligated to file a Material Change Report after receipt of the first test results.
Material Change Report
A document filed by publicly traded companies to disclose any changes that could be considered important to shareholders or the market.
Insider Trade
Buying or selling a security by someone who has access to material, nonpublic information about the security.
Mining Exploration
The process of searching for minerals or precious metals in the ground through geological research and physical exploration methods.
- Understand the principles of insider trading and its consequences.
- Identify the roles and obligations of directors, officers, and significant shareholders in a publicly traded company.
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Learning Objectives
- Understand the principles of insider trading and its consequences.
- Identify the roles and obligations of directors, officers, and significant shareholders in a publicly traded company.
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