A software quality assurance engineer working on a short-term contract for a publicly traded biotechnology firm discovers unannounced positive Phase 3 clinical trial results while running database tests. The engineer shares this information with a close friend over dinner. Based on this tip, the friend purchases call options on the firm's stock prior to the press release and generates a significant profit. The engineer did not execute any trades, nor did the friend pay or promise any financial compensation to the engineer. Under federal insider trading regulations, which of the following statements correctly describes the legal liability of the individuals involved?
- Both the software engineer (tipper) and the friend (tippee) can be held liable for insider trading violations.Cevap
- BOnly the software engineer can be held liable because the friend is not an insider or employee of the biotechnology firm.
- COnly the friend can be held liable because liability attaches exclusively to the individual who executed the trade and realized monetary gains.
- DNeither individual can be held liable because contract workers owe no fiduciary duty to company shareholders.
Cevap
Both the software engineer and the friend can be held liable under insider trading rules.
Both the tipper and the tippee are liable under federal insider trading rules. The contract engineer breached a duty of confidentiality by conveying material nonpublic information, making the engineer liable as a tipper even without trading or receiving compensation. The friend is liable as a tippee because they knowingly traded on material nonpublic information obtained through a breach of duty.
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Tipper and Tippee Liability under Insider Trading Regulations
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