A registered representative learns from a close friend, who is a clinical researcher at a publicly traded pharmaceutical company, that an upcoming drug trial failed to meet its primary endpoints. The researcher cautions the representative not to share the news. The representative does not execute any personal trades, but passes the information to a client, who immediately sells their entire position in the pharmaceutical stock to avoid significant losses. Under federal insider trading laws, which of the following statements correctly describes liability for this activity?
- Both the registered representative and the client may be held liable for insider trading violations.Cevap
- BOnly the client can be held liable because the registered representative did not execute any trades or derive a direct monetary profit.
- CNeither party is liable because the trade was executed to avoid a financial loss rather than to generate a capital gain.
- DOnly the clinical researcher and registered representative are liable because the client is not an employee of the subject company.
Cevap
Both the registered representative and the client may be held liable for insider trading violations.
Under the Insider Trading Sanctions Act and Rule 10b-5, tipper liability is established when an individual discloses material nonpublic information in breach of a duty. Tippee liability attaches when a person receives material nonpublic information and trades on it while knowing (or having reason to know) that the information was disclosed improperly. Both the registered representative (tipper) and the client (tippee) are subject to civil and criminal penalties, regardless of whether the tipper personally traded or whether the transaction avoided a loss rather than gained a profit.
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Tipper and Tippee Liability under Insider Trading Regulations
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