Under federal securities regulations, a tippee who trades on material nonpublic information is strictly exempt from insider trading liability if the insider who conveyed the information received no direct monetary compensation for doing so.
Answer: Answer
Answer
The statement is False. Personal benefit to a tipper does not require direct monetary compensation, and derivative tippee liability attaches whenever the insider breaches a fiduciary duty by sharing material nonpublic information for any personal gain (including non-monetary, reputational, or gift-based benefit) and the recipient knows or should know of the breach.
Evaluating the statement as False is correct because federal insider trading laws do not require direct financial or monetary compensation between a tipper and a tippee. Personal benefit encompasses non-monetary gains, such as reputational advantage, expected future favors, or simply providing confidential tip information as a gift. Consequently, a tippee cannot avoid liability solely because no cash was exchanged.
Step-by-Step Solution
Key Concept
Tipper and Tippee Fiduciary Breach and Personal Benefit Standard