Adequate Disclosure
You're the CFO of a small public company that builds databases for merchant marketing. Every quarter, you file a 10Q form, which in theory is the financial equivalent of The Bachelor's "The Women Tell All" special.
If you've done your job right, there is no more valuable information to disclose, and you've adequately communicated everything about your company's performance in the last ninety days, mapped to the last year, mapped to your own published estimates of what you thought you would do. So it was a real bummer when you tried to log in last Tuesday and, instead of your email system coming up, there appeared a picture of a laughing clown, smoking a Cuban cigar and asking you for ransom to get your database back.
Hoping this was a joke, you tried to login to your database...and you got another laughing clown. As your career flashes before your eyes, you go through the process of filing an 8K used for special disclosure items, publishing to the world that your security systems were inadequate, that you had been hacked, and that you really didn't yet understand the extent of the damage and wouldn't until the FBI got involved.
And just as the hangman's noose is being tightened around your neck, you see yourself paying the $10,000 ransom to the 14-year old Russian kid who hacked you. Everyone pats your back as the wise statesman and life remains normal at the country club.
Then you hear wood creak, and as you fall, you realize that you are living a scene from An Occurrence at Owl Creek Bridge and yeah, your life is over. There's no forgiveness on Wall Street for hackings these days. But as you fade into oblivion, you at least feel good for having provided adequate disclosure of your imminent demise.
Related or Semi-related Video
Finance: What is Asymmetric Information?25 Views
Finance allah shmoop what is asymmetric information Well asymmetry happens
when two sides of something aren't equal think giant red
wood and we'd regular crab and fiddler crab recumbent bike
and a eunice cycle well in the financial world asymmetric
information exists when one side of a transaction think inside
trader scumbag who collects briefcases full of cash from somalia
in overlords versus a normal joe six pack investor trying
to fairly participate in the stock market So he has
a pension to retire on while bouncing great grandchildren on
his newly installed robotic knees Well discount needs don't go
there Your summer college job is cleaning the house of
the ceo of whatever dot com currently trading at eighteen
bucks a share as you empty her garbage one night
pushing away adult diapers in the process Yes she has
a lot of pressure on the job on this conference
calls and saying ooh a lot I push that away
You realize that microsoft is buying her company for thirty
dollars a share You then by a ton of stock
at eighteen bucks you had a symmetric information because you
dug through the trash and you found the memo from
whoever the ceo is of microsoft these days to her
and that was bad You didn't have to act on
that information like you could have just done a whole
lot of nothing and not repeated it to anyone and
left the stock at eighteen dollars until it was all
in the news at thirty and moved on and still
have your job cleaning her trash Having inside information isn't
illegal but doing something to benefit yourself tor You know
your loved ones is illegal So if you trade based
on inside asymmetric information well then you just committed a
felony It's called insider trading And while here's hoping you
look good and either orange or black or or both
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