A paralegal at a law firm reviewing a pending merger between two medical device companies mentions confidential transaction details during a casual conversation with a neighbor. Although the neighbor does not execute any trades, the neighbor passes this information to their adult child, who subsequently purchases call options on the target company prior to the public announcement. Which of the following statements regarding tipper and tippee liability under federal insider trading regulations are correct?
- The paralegal can be held liable as a tipper even if the paralegal did not personally execute any trades.Cevap
- The child can be held liable as a tippee if they knew or should have known that the material nonpublic information was improperly disclosed.Cevap
- CThe neighbor is fully exempt from tipper liability because they did not execute any transactions in the target company's securities.
- DThe child is exempt from tipper-tippee liability because the material information was obtained through an intermediary rather than directly from an insider.
Cevap
The statements establishing that the paralegal can be held liable as a tipper without trading, and that the child can be held liable as a tippee if they knew or should have known the information was improperly disclosed, are correct.
Under federal insider trading laws, tipper liability does not require the tipper to execute trades or receive direct financial gain; passing material nonpublic information in breach of a duty is sufficient. Furthermore, tippee liability (including remote tippees) attaches when a person trades while knowing or having reason to know that the information was material, nonpublic, and obtained through a breach of confidentiality.
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Tipper and Tippee Liability under Insider Trading Rules