An associate at an investment banking firm learns of an unannounced acquisition while reviewing confidential corporate client files. During a private family conversation, the associate discloses details of the pending deal to a sibling. Although the associate does not execute any securities transactions and explicitly instructs the sibling not to trade, the sibling purchases shares of the target company prior to the public announcement and subsequently sells them for a substantial profit. Which of the following statements regarding insider trading liability under federal securities laws are correct?
- The sibling can be held liable as a tippee for trading while in possession of material nonpublic information.Answer
- The associate can be held liable as a tipper even if the associate did not personally purchase or sell shares of the target company.Answer
- CThe sibling is exempt from tippee liability because the sibling was not an employee, officer, or director of either involved corporation.
- DNeither party can be held liable for insider trading unless the total profits generated from the transactions exceed $50,000.
Answer
The sibling can be held liable as a tippee for trading while in possession of material nonpublic information, and the associate can be held liable as a tipper even without executing personal trades.
Under federal insider trading rules and the Insider Trading and Securities Fraud Enforcement Act, both tippers and tippees can incur civil and criminal liability. The sibling is liable as a tippee because they traded on material nonpublic information obtained from a source who breached a duty of trust. The associate is liable as a tipper because disclosing confidential information to a third party who subsequently trades constitutes a violation, regardless of whether the associate personally traded or received monetary proceeds.
Step-by-Step Solution
Key Concept
Tipper and Tippee Liability under Insider Trading Regulations
Estimated Time:2m 0s