A software engineer working at a publicly traded technology firm discloses confidential, material nonpublic information regarding an unannounced product recall to a neighbor. Based on this tip, the neighbor purchases put options on the firm's stock and realizes a financial profit. Which of the following statements correctly describes liability under federal insider trading laws?
- Both the software engineer and the neighbor can be held liable for insider trading.Answer
- BOnly the neighbor can be held liable because insider trading penalties apply exclusively to the person executing the trade.
- COnly the software engineer can be held liable because non-employees are exempt from insider trading laws.
- DNeither individual can be held liable because product safety information is not considered material information.
Answer
Both the software engineer and the neighbor can be held liable for insider trading.
Under federal insider trading regulations, both the tipper (the employee who improperly communicates material nonpublic information) and the tippee (the person who receives the tip and executes trades based on it) can be held liable for insider trading violations.
Step-by-Step Solution
Key Concept
Tipper and Tippee Liability under Insider Trading Regulations