A commercial real estate broker representing a publicly traded pharmaceutical company learns during confidential lease negotiations that the firm is significantly expanding its headquarters to accommodate the upcoming launch of a newly approved breakthrough drug. Before this approval is publicly announced, the real estate broker purchases shares of the pharmaceutical company and informs a personal friend about the pending announcement, who also purchases shares. Under federal securities laws governing insider trading, which of the following statements are correct?
- The real estate broker violated insider trading rules by trading on material, nonpublic information obtained through a confidential duty.Cevap
- The friend can be held liable as a tippee if the friend knew or had reason to know that the information was material and nonpublic.Cevap
- CThe broker is exempt from tipper liability because the broker did not receive direct cash payments from the friend.
- DThe friend cannot be held liable as a tippee because the friend is not an employee, officer, or director of the pharmaceutical company.
Cevap
The real estate broker violated insider trading rules by trading on material, nonpublic information obtained through a confidential duty, and the friend can be held liable as a tippee if the friend knew or had reason to know that the information was material and nonpublic.
The statements confirming the broker's violation and the friend's potential tippee liability are correct. The real estate broker owed a duty of confidentiality regarding information acquired during professional negotiations. Passing that information to a friend constitutes a breach of duty, and trading by the friend creates tippee liability if the friend knew or should have known the information was material and nonpublic.
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Tipper and Tippee Liability under Insider Trading Regulations