A catering supervisor at a private venue overhears two corporate executives discussing an unannounced tender offer to acquire a competing firm. The supervisor does not buy any shares, but tells their sibling about the upcoming transaction. The sibling immediately purchases stock in the target company prior to the public announcement. Based on federal securities laws regarding insider trading, which of the following statements are correct?
- The catering supervisor can be held liable for insider trading as a tipper even though they did not personally buy or sell securities.Cevap
- The sibling can be held liable for insider trading as a tippee even though they are not an employee, director, or officer of either company.Cevap
- CThe catering supervisor is completely exempt from civil and criminal liability because no personal stock trade was executed.
- DInsider trading prohibitions apply exclusively to registered representatives, broker-dealers, and corporate insiders.
Cevap
The catering supervisor can be held liable as a tipper despite executing no trades, and the sibling can be held liable as a tippee even without holding an official corporate position.
Under the Insider Trading Sanctions Act and Federal Securities Regulations, tipper liability is established when material nonpublic information is improperly communicated, even if the tipper makes no trades. Tippee liability attaches when an individual trades on information they know or should know was obtained through a breach of duty, regardless of their corporate affiliation.
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Tipper and Tippee Liability under Insider Trading Regulations