Examkin

Question

Difficulty: EasyInsider Trading and Misuse of Material Nonpublic Information

Under federal securities laws, an insider who passes material nonpublic information to a friend can be held liable as a tipper even if the insider does not trade the stock or receive monetary compensation.

Answer: Answer

Answer

The statement is True. A tipper can be held liable for insider trading when passing material nonpublic information to someone who trades on it, even if the tipper receives no monetary compensation and does not trade personally.
The statement is accurate because federal securities laws hold tippers liable if they breach a fiduciary duty by disclosing material nonpublic information, provided the recipient (tippee) trades on that information. The tipper does not need to trade or gain financially.

Step-by-Step Solution

1
Analyze the role of the insider sharing material nonpublic information (MNPI).
The insider acts as a tipper by communicating confidential, market-sensitive information.
Establishing whether the shared information meets the criteria of material nonpublic information is the first step in determining insider trading liability.
2
Evaluate the legal requirements for tipper liability under federal securities laws.
Tipper liability does not require the tipper to execute a trade or receive cash payment; intent to bestow a gift of information to a relative or friend satisfies the personal benefit test.
Courts and regulators define personal benefit broadly to include intangible benefits such as gifting insider tips.

Key Concept

Tipper and Tippee Liability Rules
Rate this question

Topics

Insider Trading and Misuse of Material Nonpublic Information