An IT administrator at a publicly traded company accesses unreleased positive quarterly earnings data on a secure internal server and discloses the numbers to a close friend. The friend then purchases company stock prior to the public announcement and sells at a significant profit once the news becomes public. Which of the following statements regarding tipper and tippee liability under federal insider trading laws are correct?
- The IT administrator (tipper) can be held liable for insider trading even if they did not personally execute trades or receive direct financial compensation.Answer
- The friend (tippee) can be held liable for insider trading if they knew or should have known that the information was material, nonpublic, and disclosed in breach of a duty.Answer
- CThe friend is exempt from insider trading liability because they are not an officer, director, or employee of the publicly traded company.
- DInsider trading violations apply exclusively to transactions executed directly in personal brokerage accounts registered under the insider's legal name.
Answer
The statements confirming that the IT administrator can be liable without trading or receiving direct compensation, and that the friend can be liable as a tippee if they knew or should have known the information was material nonpublic information obtained via a breach of duty, are correct.
Under the Insider Trading and Securities Fraud Enforcement Act and federal securities regulations, both tippers and tippees face liability. Tippers are liable for improperly sharing material nonpublic information regardless of whether they personally profit or trade. Tippees are liable if they trade while aware (or having reason to be aware) that the information was material, nonpublic, and provided in breach of a duty.
Step-by-Step Solution
Key Concept
Elements of Tipper and Tippee Liability under Insider Trading Regulations
Estimated Time:1m 0s