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Difficulty: MediumInsider Trading and Misuse of Material Nonpublic Information

Under the Insider Trading and Securities Fraud Enforcement Act of 1988, a broker-dealer can be held civilly liable as a controlling person for an employee's misuse of material nonpublic information if it failed to maintain and enforce required supervisory procedures, subject to maximum civil penalties of up to the greater of $1,000,000 or three times the profit gained or loss avoided.

Answer: Answer

Answer

True
The Insider Trading and Securities Fraud Enforcement Act of 1988 explicitly holds controlling persons (such as broker-dealer firms) civilly liable if they fail to establish, maintain, or enforce written policies to prevent insider trading, capping maximum civil fines at the greater of $1,000,000 or three times the profit gained or loss avoided.

Step-by-Step Solution

1
Analyze the statutory provisions governing broker-dealer supervisory obligations under the Insider Trading and Securities Fraud Enforcement Act of 1988.
Identify that broker-dealers are required to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of material nonpublic information.
Broker-dealers operate as controlling persons under federal securities laws and share legal responsibility for maintaining reasonable supervisory safeguards.
2
Evaluate the maximum civil penalty limits applicable to controlling persons for supervisory failures resulting in insider trading.
Confirm that civil penalties for controlling persons who fail to enforce supervisory procedures can reach up to the greater of $1,000,000 or three times the profit gained or loss avoided.
The Act established these specific statutory financial caps to incentivize strict compliance oversight at the firm level.

Key Concept

Controlling Person Liability and Civil Penalties under ITSFEA
Estimated Time:1m 0s
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Topics

Insider Trading and Misuse of Material Nonpublic Information