Bankruptcy and Insider Trading Analysis: MBA 5005 Week 4 Project

1 Week 4 Project: Scenario I & III MBA 5005: Law and Ethics for Managers Henry Berry November 20, 2023

2 Scenario I - Bankruptcy Chapter 7 bankruptcy permits the liquidation of a debtor's non-exempt assets in order to satisfy creditors following the depletion of proceeds and discharge of any outstanding debt. (2020, Kenton). Certain debts will and won't be discharged if Rusty Weaver is eligible for chapter 7 bankruptcy; school loans and debt that wasn't initially included in the case are not discharged by this type of bankruptcy (Elias, 2004). Weaver will therefore be allowed to discharge his credit card debt, but his college loans will remain unpaid unless he can demonstrate that making these payments will result in unjustified hardships. He will need to demonstrate this while filing for bankruptcy and for the foreseeable future (Elias, 2004). A 1976 statute by the Federal Commission on Bankruptcy prevents the cancellation of student loans in bankruptcy. According to the arguments made, federal student loan programs would be threatened if student loans were eliminated through bankruptcy (Evans & Shaw, 2021). According to the U.S. Department of Justice (2022), the median annual household income in the state of Alabama is $49,798 for single earners and $60,556 for two-person households. We can only compare Weaver's financial reporting to that of an Alabama single owner because the US Census Bureau bases the median income on household members who have an income and are over the age of 15 (U.S. Census, n.d.). "The means test to determine an individual's eligibility to file bankruptcy under chapter 7 was created by the Bankruptcy Abuse Prevention and Consumer Protection Act" (Bagley, 2018, p. 779). Thus, Weaver may file under chapter 7 if his monthly income is less than the state median; if it is higher, he and the trustee will have to decide whether he has enough discretionary income to pay off his debts (Bagley, 2018).

3 Thus, Weaver may file under chapter 7 if his monthly income is less than the state median; if it is higher, he and the trustee will have to decide whether he has enough discretionary income to pay off his debts (Bagley, 2018). In Alabama, the median income is $4,149.83, so his reported monthly income of $5,325 is less than the $4,227 that the trustee allowed for expenses each month, leaving him with $1,098. According to Bagley (2018), p. 779, if a person's monthly disposable income is less than $128 per month or $7,700 over five years, they may file under Chapter 7. In Alabama, Rusty Weaver would not be eligible for Chapter 7 due to this part of the means test. His disposable income is more than $128 per month and will reach almost $65,880 in five years, which is the reason. In my opinion, Weaver should look about cutting back on some costs and possibly filing under Chapter 13 to create a plan to pay off his debt within the next three to five years, rather than granting the trustees' request. Scenario III – Insider Trading "Insider trading is the purchase and sale of stock in a publicly traded company by an individual who possesses material, non-public information about that stock" (Ganti, 2020). Although Maggie's session with her doctor—or possibly her therapist—was in an uncertain setting in the scenario given, I don't see the need or utility of talking about impending mergers. She may not have intended to break any laws, but she did pass along information that wasn't supposed to be shared with her in the first place. This brings us to Gus Mason, a member of the board of directors, who intentionally disclosed insider information that had not been made public. Given his position, he ought to have refrained from disclosing such information, even if he did not intend to use it for personal benefit or to avoid the repercussions of engaging in illegal insider trading. In addition to violating patient privacy, Dr. Mooney gave Olive Green knowledge about the merger, which led to the company's instant illegal action as it was used to further its

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4 financial gain. Insider trading carries hefty fines and maximum prison terms of twenty years, five million dollars for individuals, and twenty million dollars for nonnatural persons (TherapeuticsMD, n.d.). In this instance, I think that Maggie and Dr. Mooney might receive a fine or receive no punishment at all, but Olive and Mason might face jail time and fines. However, by disclosing and acting upon private information, each participant engaged in immoral action.

5 Reference Bagley, C.E. (2018). Managers and the legal environment: strategies for business (9th edition). https://digitalbookshelf.southuniversity.edu/reader/books/9780357902851/epubcfi/6/2[% 3Bvnd.vst.idref%3DM1]!/4/4/2/2%4051:39 Elias, S. (2014). How to file for chapter 7 bankruptcy (11th edition). https://eds-p- ebscohostcom.su.idm.oclc.org/eds/ebookviewer/ebook/bmxlYmtfXzEwODQwNV9fQU41? sid=8d2b5dfa-af08-4468-a4fa-72ff0fe0ad15@redis&vid=8&format=EB&rid=4 Evans, B. & Shaw, M. P. (2021, August 25). Can student loans be cleared through bankruptcy? 4 questions answered. The conversation. https://theconversation.com/can-student- loans-becleared-through-bankruptcy-4-questions-answered-166308 Ganti, A. (2022, March 7). Insider trading. Investopedia. https://www.investopedia.com/terms/i/insidertrading.asp Kenton, W. (2020, July 21). What is chapter 7? Investopedia. https://www.investopedia.com/terms/c/chapter7.asp TherapeuticsMD, Inc. (n.d.). 2013 insider trading policy. https://www.sec.gov/Archives/edgar/data/25743/000138713113000737/ex14_02.htm#:~:t ext=Criminal%20Penalties.,publicly%20traded)%20is%20now %20%2425%2C000%2C000 The United States department of justice. (2022, March 11). Means testing: census bureau, IRS data and administrative expenses multipliers. https://www.justice.gov/ust/meanstesting/20210515

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