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Can a chair(wo)man of a public company personally buy up the majority of a bond offered by that same company?

Scenario: Public company issues corporate bond. Chair(wo)man of same company buys majority of the bond.

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    Sure they could, but what would be the point? – D Stanley Oct 3 '18 at 1:54
  • @DStanley Artificially drive up the price? – brt Oct 3 '18 at 1:55
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    Corporate bonds don't have nearly as strong of a secondary market as stocks or government bonds, so it's unlikely that such a strategy would be very profitable. – D Stanley Oct 3 '18 at 1:59
  • Are you asking if such an action would be legal according to insider trading regulations? Laws vary by country. Which country’s laws are you interested in? – Ben Miller Oct 3 '18 at 11:06
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    Was the bond purchased upon first offer or on secondary market? Was it a restricted offer? Does the chairwoman also hold a significant stock position on the company? If she owns zero stock and commands a bond to be issued at a very high interest rate just so that she can get most of the bond for herself, then that would surely be forbidden. Other than a very strange case like this, I would guess the person was just at peace with the bond investment because she knows the company's risk. (you usually don't understand that well the risks other companies face). – Mefitico Oct 5 '18 at 19:25
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Yes, she could do that. A chairwoman buying a large amount of financial instruments from her own company might raise suspicions of insider trading. But if nobody can prove that she knew something which might affect the price in the future and which is not known to the general public, then there is nothing wrong with that.

However, the plan to buy bonds to "artificially drive up the price" is unlikely to be useful. In contrary to stocks, people rarely buy bonds because they expect to later sell them at a higher price. Bonds are bought because they have a guaranteed payout over a fixed timespan (and become worthless when the timespan is over). So buying a bond is a simple cost/benefit/risk assessment (the risk being that the company goes bankrupt and can't pay the promised payout). Driving up the price of a bond just makes it less attractive, because it now costs more for the same return.

If a company wants to borrow money from the private purse of a chairwoman, then doing so by issuing bonds and having her buy most of it is an unnecessarily convoluted method. The chairwoman could just give a regular loan to the company.

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My concern would be "was the bond issue created and priced in a hands off manner?"

The chair has a responsibility to the company and the shareholders. They are also an insider. Therefore they have knowledge of the company now that may make owning those bonds in a few months very valuable.

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