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0860 Insider Trading

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Welcome to English as a Second Language Podcast number 860: Insider Trading.

This is English as a Second Language Podcast episode 860. I’m your host, Dr. Jeff McQuillan, coming to you from the Center for Educational Development in beautiful Los Angeles, California.

Our website is ESLPod.com Go there and become a member of ESL Podcast. That way, you can download the Learning Guide for this episode.

This episode is a dialog between Rita and Rick, about buying and selling stocks. Let’s get started.

[start of dialog]

Rita: I just got a hot tip from my brother to buy stock in McQ Corp.

Rick: Your brother works for McQ Corp., doesn’t he?

Rita: Yeah, he’s a director in the company, so he should know if something big is brewing.

Rick: If he’s a director and he knows something that isn’t publicly disclosed about the company, and he’s telling you to buy stock, isn’t that insider trading?

Rita: Insider trading?! I’m not a major investor. I don’t plan to buy so many shares that I’ll become a major shareholder. All I can afford are a few shares.

Rick: Still, he’d be considered a corporate insider and may be breaching his fiduciary responsibilities. Giving you this tip could get him, and you, into a lot of trouble.

Rita: Who are you, an SEC regulator? People do this kind of thing all the time, and there’s nothing shady about it. If you’re smart, you’d buy a few shares yourself.

Rick: Uh, no thanks. I don’t think I’d look good in an orange jumpsuit.

[end of dialog]

Rita begins by saying to Rick, “I just got a hot tip from my brother to buy stock in McQ Corp.” A “tip” (tip) is advice, information that will help you. A “hot tip” is typically a tip about some piece of information that’s very timely that you need to do something about right away. This is often a term that we use when we’re talking about secret information – in this case, the information is about buying stock. “Stock” (stock) is partial ownership in a company. You can buy stock in what’s called a “stock market.” You could buy stock in a big company like Microsoft or Apple or any other of the large companies. They all sell stock and you can go and buy a little piece of that company.

Rita then has a hot tip about buying stock in McQ Corp. Rick sys, “Your brother works for McQ Corp. doesn’t he?” Rita says, “Yeah. He’s a director in the company.” A “director” is a member of the company’s, the corporation’s “board of directors.” This is a group of people – men and women – who make important decisions about the company, all the most important decisions, including who to hire as the president. They are made by the Board of Directors. Rita’s brother is on the Board of Directors of McQ Corp.

Rita says, “He should know if something big is brewing.” The expression “something big is brewing” (brewing) means that something important is going to happen but no one knows exactly what it is. It’s secret information. “Something big is brewing.” Rick says, “If he’s a director and he knows something that isn’t publicly disclosed about the company, and he he’s telling you to buy stock, isn’t that insider trading?” Rick is saying that if Rita’s brother is on the board of directors of McQ Corp. and he knows something that isn’t publicly disclosed, then there’s a problem. “Publicly” means that everyone knows about it. “Disclosed” means that you tell someone. So, if you “publicly disclose (disclose) information,” you announce it to everyone. You tell the newspaper, you tell the television stations, “This is what’s happening in my company.”

In the United States, there are very strict, very specific rules that you have to follow as a company. You can’t be buying and selling your stock based on information that you don’t tell everyone else about. That’s exactly what is happening here. Rita’s brother is using his information that hasn’t been publicly disclosed to tell his sister to buy stock. That is what we call “insider trading.” “Trading” refers to buying and selling stocks. “Insider” (insider) refers to someone who is inside of or part of an organization or group, in this case, a corporation, a company. “Insider trading” is when you take the information you have about your company and you buy and sell stocks, even though no one else knows that information. That is against the law in the United States if the company is what is called “publicly traded;” that is, if anyone can go and buy stock in that company.

Rita says “Insider trading? I’m not a major investor.” An “investor” (investor) is someone who “invests” (invest). “To invest” means to buy stock in a company or to buy something that you think will be worth more money in the future. You can be a real estate investor. You could buy buildings and houses, hoping that the price goes up. By the way, that doesn’t always happen.

Rita says she’s not a “major investor.” “Major” (major) here means a very important one or a large investor. She says, “I don’t plan to buy so many shares that I’ll become a major shareholder.” “Shares” are what we call the individual units of stock. A “shareholder” is someone who owns shares. So, “shareholder” here really means the same as “stockholder” – someone who owns shares, who owns stock in a specific company. Rita says, “All I can afford” – all I have money for – “are a few shares” – just a couple pieces of stock, if you will. Rick says, “Still, he’d be considered a corporate insider” – he, being Rita’s brother – “and may be breaching his fiduciary responsibilities.”

We already talked about what an “insider” is. “Corporate” (corporate) is something related to a corporation – a large company, in this case. So, a “corporate insider” would simply be someone who works at a large company or a corporation. Rick says that Rita’s brother would be considered a corporate insider and may be – possibly – breaching his fiduciary responsibilities. “To breach” (breach) means to break or violate or to do something wrong with regards to, in this case, responsibilities that you have. If you’re on the board of directors of a publicly traded corporation, you have fiduciary responsibilities. “Fiduciary” (fiduciary) involves the trust that the company has given to you, as it relates to money or investments. So, “fiduciary” is usually a term we use when we’re talking about money and your responsibilities as someone who has information about a company or about an individual.

Rick says, “Giving you this tip could get him” – Rita’s brother – “and you, into a lot of trouble.” You could possibly be breaking the law here. Rita says, “Who are you, an SEC regulator?” “SEC” stands for the Securities and Exchange Commission. This is the U.S. government agency that is responsible for regulating, for making sure that people in the stock market are doing what they are supposed to, are following the law. A “regulator” (regulator) is a person who works in a government agency, a government organization that is responsible for going out and making sure people are following the rules. In this case, the rule is related to buying and selling stocks.

Rita says, “People do this kind of thing all the time and there’s nothing shady about it.” “Shady” (shady) means dishonest, not completely honest. There’s something that you’re hiding. There’s something that you aren’t supposed to do that you are doing. That’s the adjective “shady.” We might say, “He’s a shady character,” meaning he’s not an honest person. He’s not someone you should trust. There’s something strange about that person. That’s what people say about me. Rita says, “If you’re smart, you’d buy a few shares yourself.” So, Rita says there’s nothing wrong with this.

Rick says, “No thanks, I don’t think I’d look good in an orange jumpsuit.” A “jumpsuit” (jumpsuit) is a piece of clothing that covers your entire body, from your shoes up to your neck, from your ankles to your neck. You would, perhaps, see someone who works on automobiles – a mechanic – might be wearing a jumpsuit to protect his clothing underneath. However, we also put prisoners – people who are in jail, people who have been arrested because they’ve broken the law – in jumpsuits. And it’s become common in recent years to put them in a very bright-colored jumpsuit so in case they escape, they are easy to catch. And the color that is often used is orange. So, when Rick refers to an orange jumpsuit, he’s talking about someone who would be arrested. He thinks that what Rita is recommending is against the law and he doesn’t want to go to jail.

Now let’s listen to the dialog this time at a normal speed.

[start of dialog]

Rita: I just got a hot tip from my brother to buy stock in McQ Corp.

Rick: Your brother works for McQ Corp., doesn’t he?

Rita: Yeah, he’s a director in the company, so he should know if something big is brewing.

Rick: If he’s a director and he knows something that isn’t publicly disclosed about the company, and he’s telling you to buy stock, isn’t that insider trading?

Rita: Insider trading?! I’m not a major investor. I don’t plan to buy so many shares that I’ll become a major shareholder. All I can afford are a few shares.

Rick: Still, he’d be considered a corporate insider and may be breaching his fiduciary responsibilities. Giving you this tip could get him, and you, into a lot of trouble.

Rita: Who are you, an SEC regulator? People do this kind of thing all the time, and there’s nothing shady about it. If you’re smart, you’d buy a few shares yourself.

Rick: Uh, no thanks. I don’t think I’d look good in an orange jumpsuit.

[end of dialog]

There’s nothing shady about our scriptwriter, I don’t think. That’s the wonderful Dr. Lucy Tse I’m talking about here. Thank you, Lucy.

From Los Angeles, California, I’m Jeff McQuillan. Thank you for listening. Come back and listen to us again, right here on ESL Podcast.

English as a Second Language Podcast is written and produced by Dr. Lucy Tse, hosted by Dr. Jeff McQuillan. Copyright 2013 by the Center for Educational Development.

Glossary
hot tip – exciting secret information that will be beneficial; important information that is not known to other people

* The store sends hot tips about upcoming sales to its best customers.

stock – share; partial ownership in a company, bought and sold as a way to try to make money

* Their retirement funds are mostly invested in high-tech stock.

director – a member of a corporation’s board of directors; one of the people who makes decision about the strategy and future plans of a company, working closely with senior management

* Two of our directors have extensive experience in finance.

something big is brewing – a phrase meaning that something important is happening, but the details of it and the final results are not yet known

* When people see all of the managers meeting behind closed doors like that, they know something big is brewing.

publicly disclosed – information or data that is made available to the public, so that anyone can access it and it is no longer secret

* Should the president’s medical records be publicly disclosed?

insider trading – financial transactions, particularly the buying and selling of stock, by people who work for the company or are closely connected to it and who are reacting to secret information that other people do not know

* Charlene never talks about her work with her friends, because she doesn’t want to be accused of insider trading.

investor – someone who buys things and then tries to sell them later at a higher price or produces products and services in order to make money

* Yokuhiro has begun buying homes as a real estate investor.

share – stock; individual units or pieces representing partial ownership of a company, bought and sold as a way to try to take money

* How many shares of the company do you own?

shareholder – a person who owns one or more shares of a particular company; a person who owns stock in a particular company

* The company has an annual meeting for all its shareholders to learn about the company’s progress and vote on new directors.

corporate insider – a person who has information about a company, usually as an employee of that company

* Business reporters are always trying to get information from corporate insiders before a major company move.

to breach – to violate; to break the rules; to go beyond the limit of something

* The protestors breached the police line.

fiduciary – involving trust, especially for a person to be responsible for a person’s or organizations’ money or investments

* The position has a fiduciary role, as it oversees all spending decisions.

SEC – the Securities and Exchange Commission; the U.S. governmental agency responsible for regulating and overseeing the markets in which shares and stock are bought and sold, making sure that transactions are fair

* How often does the SEC audit companies traded on the New York Stock Exchange?

regulator – an agency that makes rules or laws controlling the behavior of others

* The Food and Drug Administration is a regulator of pharmaceutical companies, controlling which new drugs can be sold.

shady – not completely honest, open, or transparent; with some hidden, negative purpose; full of doubt

* When we asked our new neighbor where he works, he gave us a shady answer and quickly changed the subject.

jumpsuit – a piece of clothing that covers one’s entire body, like a long-sleeved shirt and a pair of pants that are connected, usually with a zipper or buttons along the chest or back, often worn by people in prison

* All the mechanics here wear thick grey jumpsuits while they work on cars.

Comprehension Questions
1. What does Rita mean when she says her brother “should know if something big is brewing”?
a) He is responsible for new beers in the company.
b) He knows what important things are happening.
c) He is going to get a promotion soon.

2. What does Rick mean when he says, “I don’t think I’d look good in an orange jumpsuit”?
a) He doesn’t want to be rich.
b) He doesn’t want to risk his investment.
c) He doesn’t want to go to jail.

Answers at bottom.

What Else Does It Mean?
tip

The phrase “hot tip,” in this podcast, means exciting and secret information that will be beneficial, or important information that is not known to other people: “Here’s a hot tip: If you click the gold star in the video game, you’ll get 500 bonus points!” A “tip” is normally the pointed end of something: “During the presentation, he used the tip of his pencil to point to the graphic as he explained the chart.” Finally, the phrase “on the tip of (one’s) tongue” describes being unable to produce a name or the word for something, because one has forgotten it: “Sheila got really nervous during her Italian exam and felt like the words were on the tip of her tongue, but she wasn’t able to say them.”

shady

In this podcast, the word “shady” means not completely honest, open, or transparent, or with some hidden, negative purpose: “The company has participated in a lot of shady business dealings, but technically, it hasn’t done anything illegal.” The word “shady” also means protected from the heat and bright light of the sun: “Why don’t we move these chairs to a shady area under the trees, so we don’t get sunburned?” Or, “Which vegetables will grow in the shady part of our garden?” The word “shade” refers to the specific type of color or how light or dark a color is: “Her eyes are a beautiful shade of bright green.” Finally, the related word “shades” is an informal term for sunglasses: “It’s going to be bright on the beach, so remember to take your shades.”

Culture Note
Martha Stewart Insider Trading

In 2001, an “experimental drug” (a medicine that is being tested) produced by a company called ImClone was not approved by the “Food and Drug Administration” (FDA, the U.S. government agency responsible for keeping foods and medicines safe). When that happened, but before the announcement was “made public” (shared with all people), the company’s founder, Samuel Waksal, shared the information with some family members and friends, telling them to sell their ImClone stock before the announcement was made public. One of the people he told was Martha Stewart, a “celebrity” (famous person) who is best known for her “tips” (suggestions; ideas) for “housekeeping” (taking care of a home and making it feel comfortable) and “entertaining” (having friends over for visits).

After speaking with Samuel, Martha sold about $230,000 of ImClone stock one day before the FDA made its announcement. The SEC began an investigation and Martha “denied” (said she did not do) any “wrongdoing” (wrong or illegal actions). But in 2004, she was “sentenced” (told what one’s punishment would be) to five months in prison and five months of in-home “confinement” (not being allowed to leave one’s home). Throughout the period and “to this day” (up to the present time), Martha has “maintained her innocence” (continued to argue that she is not guilty).

Some people had “speculated” (thought something to be true) that the “prison term” (time spent in jail) would ruin Martha’s career, but she has since made a “comeback” (a return to one’s previous status or level) and her businesses are doing well.

Comprehension Answers
1 - b

2 - c