A freelance language interpreter is hired to translate during a confidential, closed-door merger negotiation between two publicly traded pharmaceutical companies. During a break, the interpreter buys shares of the target company based on the unannounced acquisition terms discussed. Which of the following statements correctly describes the insider trading liability in this scenario?
- The interpreter is liable for insider trading because trading on material, nonpublic information obtained through a duty of trust or confidentiality is illegal.Answer
- BThe interpreter is exempt from liability because non-employees of the participating companies are not bound by insider trading regulations.
- CThe interpreter committed no violation because liability only arises if an officer or director of the company traded on the information.
- DThe interpreter is not liable as long as the securities purchased were held in a personal brokerage account rather than a corporate account.
Answer
The interpreter is liable for insider trading because trading on material, nonpublic information obtained through a duty of trust or confidentiality is illegal.
The correct answer highlights that individuals who obtain confidential, material nonpublic information in the course of providing professional services (such as interpreting, legal, or consulting work) are bound by a duty of trust. Trading on such information constitutes illegal insider trading under federal securities rules.
Step-by-Step Solution
Key Concept
Misappropriation of Material Nonpublic Information by Temporary Insiders / Service Providers