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Question

Difficulty: EasyInsider Trading and Misuse of Material Nonpublic Information

Under federal securities laws, an insider who passes material nonpublic information to a recipient can be held liable for insider trading even if the insider does not execute any personal trades based on that information.

Answer: Answer

Answer

The statement is True. A corporate insider who discloses material nonpublic information in breach of a fiduciary duty can be held liable as a tipper regardless of whether they personally executed any stock transactions.
The statement is correct because tipper liability is established when an insider breaches a fiduciary duty by improperly communicating material nonpublic information to another person who trades on it. Personal trading by the insider is not required.

Step-by-Step Solution

1
Identify the key elements of tipper liability under insider trading regulations.
Tipper liability requires possessing material nonpublic information, breaching a duty by disclosing that information, and expecting or knowing that the recipient (tippee) will trade on it.
Federal securities law focuses on the improper breach of duty and unauthorized disclosure, not strictly on who places the trade.
2
Evaluate whether personal trading by the tipper is a required element of the violation.
Personal trading by the tipper is not a required element for establishing insider trading liability.
Both the tipper (the discloser) and the tippee (the trader) can face civil and criminal penalties under federal law once a trade occurs based on the leaked information.

Key Concept

Tipper Liability and Misuse of Material Nonpublic Information
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Topics

Insider Trading and Misuse of Material Nonpublic Information