A corporate consultant receives confidential, material nonpublic information regarding an upcoming merger from a board member. The consultant does not personally trade on the information, but passes the tip to a family member who subsequently purchases shares and realizes a profit. Which of the following statements regarding insider trading liability under federal securities laws are correct?
- The board member and consultant can both be held liable as tippers even if neither executed a personal stock trade.Answer
- BThe family member is exempt from tippee liability because they are not an insider or employee of the target corporation.
- The family member can be held liable as a tippee for trading while in possession of material nonpublic information.Answer
- DTippee liability requires proof that direct monetary payment was made to the tipper in exchange for the inside information.
Answer
Under federal insider trading regulations, tippers who pass material nonpublic information that results in a trade can be held liable even if they do not trade personally, and tippees who knowingly trade on such information inherit liability regardless of corporate employment or direct financial compensation.
Federal securities laws establish that individuals passing material nonpublic information can be held liable as tippers whenever a trade occurs, even without personal execution of trades. Simultaneously, tippees who trade on information they know to be material and nonpublic incur liability regardless of employment status at the subject firm.
Step-by-Step Solution
Key Concept
Elements of Tipper and Tippee Liability
Estimated Time:1m 0s