ETHICS IN FINANCE

UNIVERSITY OF PEOPLE
Abstract

Kathy Ryan works as a trade credit officer for Diversified Consolidated Corporation (DCC), Scott Bradley

works as a treasure for North Manufacturing, Mike Walman works for Basic Products as a credit manager. Kathy

has developed a good working relationship with Scott, she and Mike are friends. North is a common customer to

DDC and Basic. Scott openly shared some important financial information with Kathy on their lunch outing. Mike

wants to know from Kathy about North because North is requesting to do greater business with them. We will

explore what Kathy can and cannot tell Mike about North without crossing many lines.

Relevant Facts

Kathy Ryan is a trade credit officer at Diversified Consolidated Corporation and is responsible for credits

to North Manufacturing in the amount of $1 million and she wanted to make sure DCC would be able to pay her

company back. Scott Bradley is a treasury at North Manufacturing and he formed a good working relationship with

Ryan. He shared valuable information concerning North Manufacturing financial difficulties, struggles and potential

threats with Ryan. He is concerned about the fraudulent financial statements about the company and states that they

have intentions to pay DCC all their money by the end of year if Basic Products supplies them on credit and he

states that this was one opportunity for North Manufacturing to make a comeback.

Mike Walman is a credit manager at Basic Products and the company is considering doing greater business

with North Manufacturing. While North is a customer of Basic and Walman and Ryan are friends, Basic wanted to

check if North’s financials are in good shape and are not fraudulent to make payments and proceed to fill a large

order they are placing through the end of year.

Ethical Issues

Walman called Ryan to check if the financial statements of North are good and if they are making regular

payments to DCC, Ryan has an issue regarding this. Although Ryan can clearly inform Walman that North was

making regular payments to DCC, she had an information obtained from Bradley. As Barone (2020) explains,

insider information is a non-public fact regarding the plans or conditions of a publicly traded company that could

provide a financial advantage in a securities market. Ryan gained this negative information from Bradley pertaining

to North’s financial statements were not as positive as provided financial statements. The company was considering
about bankruptcy and conversations were going on with the attorneys about it. North was planning on obtaining

products on credit from Basic and was considering this as the best option to turn around on the company after this

deal would have been succeeded. This decision made by the North lead Bradley to turn around on the company and

reveal the actual facts of the company to Ryan, as the information provided by Bradley was not a publicly

acknowledged, it is also considered unethical for Bradley to let the outsiders know about the company’s internal

information.

Stakeholders

In this case the interim stakeholders are Ryan (DCC), Bradley (North) and Walman (Basic), the company’s

stakeholders generally include all the customers, employees and the stakeholders also as secondary as if it could

affect all related persons in business with the company. If North goes out of business, which could lead Bradley

resign his job including all the major stakeholders of the company. As for Ryan, she could lose all her benefits and

the job as the ultimate decisions made. DCC could lose customers that could hamper the business in long run and

Basic would lose the customer service relations on behalf of the decisions made by it.

Possible Alternatives

Ryan has to decide whether she would make the inside available information obtained by Bradley to

Walman. As for Walman, he and his employer are about to do business with North, it is important to find out if

North has a good financial statement. With the above situations there can be possible some alternatives that we can

exercise:

Alternative 1: Ryan can not leak the information that she obtained from Bradley and stay silent, as the insider

information was provided by Bradley and it is not for public to know about. Being a professional she can act as if

she does not know and proceed legally to obtain that information again.

Alternative 2: Ryan can act professionally and can suggest Walman to verify all the financial statements in public

information and if she succeeds in doing this all of the people involved in this can be ethical in all the decisions

made and there won’t be any dilemma on anyone.

Ethics to Alternatives
 As Bradley and Ryan have a nice working relationship and Bradley has shared the information to Ryan the

information of the company that was not publicly announced, so Ryan has the option to not share the obtained

information to Walman and act ethically professional and just engage with Walman on the information that is

publicly available only. According to the Securities Exchange Act of 1934 section 10b addresses insider information

direct and non-direct, in directly 10b-5, gives it more detail insight on when to abstain or must disclose. If Ryan

would have shared this information to Walman, the SEC could have held her liable for revealing the private

information that was not made public and would be addressed under directly and indirectly through 10b ().

Applying a just perspective will be when Ryan would suggest Walman to go over the company’s financial

statements and would advise him to make it publicly available and to validate her claims Walman would express the

company’s financial situation in a proper way. The insider information that Ryan obtained which she would have

shared with Walman would not lead her to be unethical and she could get in more deeper problems of her such acts.

But if she advises Walman to make everything public then it would not be beneficial for her for getting the insider

information but it would be professionally ethical for her.

Practical Constraints

As fundamentally and professionally it may sound, after Walman was offered to disclose the information to

the public, it would be clear to all the parties included in the case. Even if Bradley disclosed the information to Ryan

about the company as an insider, it would not affect Ryan on getting the insider information from Bradley, and it

would be considered ethical in all regards. This could be great example for the SEC coming up with the Security Act

of 1993 and the Security Exchange Act of 1934. Bradley is representing North and he is unethical and he is

confiding in the person who they hold a great debt, while mentioning taking advantage of another company for their

financial gain. All while trying to persuade Ryan that this would work in their favor because DCC would get their

money back from business.

Recommendation

My recommendation to Ryan would be revealing Walman that she heard the rumors about the company’s

financial status which could encourage Walman to investigate as the credit manager on the behalf of his duties to his

company and check the fraudulent company’s status. Her word choices would have to be within the constraints of
the law, organizations policy and not pose as a violation or conflict of interest. Moreover, she could do this without

severing the relationships that she has with Bradley and Walman, even though there are emotional dealings and

personal attachments. Ryan is obligated to do what would uphold the law and her company’s best interest.

References

Barone, A. (2020, April 30). What Investors Can Learn from Insider Trading. Retrieved May 04, 2020, from
https://www.investopedia.com/articles/02/061202.asp

Speech by SEC Staff: Insider Trading – a U.S. Perspective. (n.d.). Retrieved May 04, 2020, from
https://www.sec.gov/news/speech/speecharchive/1998/spch221.htm