Examkin

Question

Difficulty: HardInsider Trading and Misuse of Material Nonpublic Information

Under the Insider Trading and Securities Fraud Enforcement Act of 1988, the Securities and Exchange Commission (SEC) may assess civil monetary penalties against a broker-dealer as a controlling person up to three times the profit gained or loss avoided by an employee who engages in insider trading, even if the firm actively established, maintained, and enforced written supervisory procedures reasonably designed to prevent insider trading.

Answer: Answer

Answer

The statement is False. Under the Insider Trading and Securities Fraud Enforcement Act of 1988, controlling person civil penalties apply only if the firm failed to establish, maintain, and enforce policies reasonably designed to prevent violations.
The statement is incorrect because controlling person liability under ITSFEA requires establishing that the controlling entity knowingly or recklessly failed to establish, maintain, or enforce written procedures reasonably designed to prevent insider trading. If a broker-dealer satisfies its supervisory obligations, controlling person civil penalties do not apply.

Step-by-Step Solution

1
Identify the statutory provisions governing controlling person liability under the Insider Trading and Securities Fraud Enforcement Act of 1988 (ITSFEA).
ITSFEA establishes civil penalties for controlling persons (such as broker-dealers) whose employees engage in illegal insider trading.
Broker-dealers are held accountable for maintaining compliance environments that deter the illegal misuse of material nonpublic information.
2
Analyze the legal standard required to establish controlling person liability against a broker-dealer.
Controlling person penalties require proof that the firm knowingly or recklessly failed to establish, maintain, or enforce written supervisory policies and procedures reasonably designed to prevent violations.
Liability is anchored on supervisory failure rather than strict vicarious liability.
3
Evaluate the condition presented in the statement regarding a firm with adequate written supervisory controls.
Because the statement claims civil penalties apply even if the firm actively established, maintained, and enforced adequate supervisory procedures, the statement is incorrect.
Proper enforcement of reasonable supervisory procedures insulates the controlling broker-dealer from controlling person civil penalties under ITSFEA.

Key Concept

Controlling Person Liability and Supervisory Requirements under ITSFEA
Estimated Time:1m 30s
Rate this question

Topics

Insider Trading and Misuse of Material Nonpublic Information