You are a broker and financial consultant who works both with large businesses in your community and with first-time investors. Many of the first-time investors in your community are elderly people who are interested in supplementing their income with low to moderate risk. A client comes in and asks your opinion about whether he should purchase stock in a local company that manufactures parts for industrial vehicles. From all appearances, the company seems to be thriving and is a good investment. However, you know from a friend who works in the company’s accounting department that the CEO is very close to being indicted for embezzlement and that the company is in serious financial trouble as a result of the CEO’s actions. When this becomes public, stock values are expected to dip sharply. Answer the following questions:
a. Should you advise your client to not purchase this stock? Why or why not?
b. How much can you tell your client about the situation regarding this company? Why?
c. Would you be liable if you, knowing this information, advised your client to purchase this stock and then it dropped? Why or why not?