A supply chain analyst at a publicly traded electronics manufacturer learns during an internal meeting that a critical component failure will delay the company's flagship product launch indefinitely. That evening, the analyst shares this information with a neighbor who has no professional connection to the company. The neighbor immediately purchases put options on the company's stock and realizes a significant profit following the public announcement of the delay. Under federal securities laws regarding insider trading, which of the following statements correctly describes the legal liability of the neighbor?
- The neighbor is liable as a tippee because the neighbor knowingly traded securities using material nonpublic information obtained from an insider who breached a duty.Cevap
- BThe neighbor is exempt from insider trading liability because the neighbor is not an employee, officer, or registered insider of the manufacturing company.
- COnly the supply chain analyst can be held liable for insider trading, as individuals without a direct fiduciary duty to shareholders cannot be prosecuted as tippees.
- DThe neighbor cannot be held liable for insider trading unless the supply chain analyst received direct financial compensation in exchange for disclosing the confidential information.
Cevap
The neighbor is liable as a tippee because the neighbor knowingly traded securities using material nonpublic information obtained from an insider who breached a duty.
The correct answer correctly states that tippees who knowingly act on material nonpublic information derived from a breach of duty are subject to insider trading liability. Under federal securities regulations (including Rule 10b-5 and the Insider Trading and Securities Fraud Enforcement Act), tippees assume a derivative duty not to trade once they receive nonpublic material facts from an insider.
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Tippee Liability under Insider Trading Regulations