As we are sure you know by now, Dunkin’ Brands Group, Inc. has become a publicly traded company (DNKN: NASDAQ). As franchisees, you should be aware of issues that may arise if you elect to buy or sell shares of DNKN, or simply based on your continuing status as a franchisee.
The Securities and Exchange Commission describes insider trading as follows: Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security.
Insider trading violations may also include “tipping” such information, securities trading by the person “tipped,” and securities trading by those who misappropriate such information.
A person can be liable for “tipping” others even if that person does not buy or sell shares himself. In the same way, a “tippee” can be liable for trading even if that person is not a company insider, as long as the “tippee” receives material nonpublic information from a corporate insider.
Company insiders may not use nonpublic information to trade stock for gain. Similarly, the improper acquisition and use “material nonpublic information” to trade securities is prohibited. “Material nonpublic information” is information that investors would likely consider important in making investment decisions.
Over time an “insider” has come to be defined to include corporate officers, directors and employees. While franchisees are not corporate employees, they could be considered business associates of corporate insiders, thus corporate insiders. This may be particularly true of franchisees that by reasons of leadership positions are privy to brand-sensitive information.
These rules do not prohibit you from owning the shares of DNKN. However, if you do decide to buy or sell shares of DNKN, you should be careful to scrupulously observe these laws and not buy or sell DNKN shares based on material nonpublic information.
The SEC’s website states as follows: Because insider trading undermines investor confidence in the farness and integrity of the securities markets, the SEC has treated the detection and prosecution of insider trading violations as one of its enforcement priorities.
The government has brought both criminal and civil prosecutions against people for insider trading.
You should also be careful with information outsiders may seek on the condition of your business, new products, sales, sales mixes and any number of other topics. This information is generally not known publicly, and some traders and analysts may try to get an edge by using information that you might have. Please be sure not to communicate with these people, and instruct your employees, as you usually do not pass along any such business information.
Passing along inside information, even if you do not trade on it, could put you in violation of these laws. Even passing inside information to family members could make you liable under the securities laws if family members trade based on that information.
Finally, a reminder that section 10 of your franchise agreement contains a confidentiality provision that requires you to refrain from (a) sharing Confidential Information with anyone, or (b) using Confidential Information for the benefit of anyone, except in carrying out your obligations under the agreement.
If you have any questions, we urge you to consult your own professional advisors and to visit the SEC’s website at http://www.sec.gov/answers/insider.htm.