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Question
While auditing the financial statements of Merlyn Company, Arturo Artinez discovers nonpublic, confidential information that Merlyn's earnings will be larger than earlier projected. Arturo informs his sister Selena about this, telling her, "You can make a lot of money using this information because it isn't public yet. Be discreet, however, because I'm not supposed to give you this information." Selena uses the information to purchase 20,000 shares of Merlyn. Three weeks later when, Merlyn releases the financial statements showing its actual earnings, the price of its shares rises and Selena earns a $120,000 profit. Has Selena violated Rule 10b-5 of the Securities Exchange Act?
Answer
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