A registered representative receives material nonpublic information regarding an unannounced corporate acquisition from an insider friend. Although the friend tells the representative not to trade, the representative passes the confidential information to a client, who then purchases shares of the target company and makes a substantial profit. Under federal securities laws, which of the following statements correctly describes the liability of the registered representative?
- The registered representative is liable as a tipper for passing material nonpublic information, regardless of whether the representative personally traded or profited.Cevap
- BThe registered representative incurs no insider trading liability because the representative did not personally buy or sell securities.
- COnly the client who executed the trades can be held liable, as tipper liability applies exclusively to corporate insiders.
- DThe registered representative is exempt from liability because the insider friend explicitly instructed the representative not to trade.
Cevap
The registered representative is liable as a tipper for passing material nonpublic information, regardless of whether the representative personally traded or profited.
Under federal securities laws, an individual who possesses material nonpublic information and communicates it to another person who subsequently trades on that information commits an insider trading violation as a tipper. Tipper liability does not require the tipper to have personally executed trades or realized monetary profits.
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Tipper and Tippee Liability under Insider Trading Regulations
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