An individual receives a tip about an upcoming corporate acquisition from a friend who is an executive at a publicly traded company. Knowing the information is material and nonpublic, the individual executes a trade based on this tip. Which of the following statements correctly describes the legal liability under federal insider trading regulations?
- Both the corporate executive who passed the information and the individual who traded on it can be held liable for insider trading violations.Cevap
- BOnly the corporate executive can be held liable, because individuals who are not employees of the subject company are exempt from tippee liability.
- CNeither party can be held liable unless the corporate executive received a direct cash payment for providing the information.
- DOnly the individual who executed the trade is liable, as tipper liability is completely removed once the tippee places the order.
Cevap
Both the corporate executive who passed the information (the tipper) and the individual who traded on it (the tippee) can be held liable for insider trading violations.
Under federal securities laws and the Insider Trading Sanctions Act, both the tipper (who improperly discloses material nonpublic information) and the tippee (who trades while knowing the information is confidential) are subject to civil and criminal liability.
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Tipper and Tippee Liability under Insider Trading Regulations