An individual who does not work for a publicly traded corporation receives confidential, material nonpublic information about an upcoming corporate acquisition from a company executive. If the individual executes a stock trade based on this information to generate a profit, which of the following statements correctly describes the legal consequences under insider trading regulations?
- Both the individual receiving the tip (tippee) and the executive providing it (tipper) can be held liable for insider trading.Cevap
- BOnly the executive (tipper) can be held liable because the individual (tippee) is not an employee of the corporation.
- CNeither party is liable as long as the trade was executed through a personal retail brokerage account.
- DOnly the individual executing the trade (tippee) is liable, fully absolving the executive of any wrongdoing.
Cevap
Both the individual receiving the tip (tippee) and the executive providing it (tipper) can be held liable for insider trading.
Under federal securities laws, insider trading prohibition applies to both the tipper (who passes material nonpublic information in breach of a duty) and the tippee (who receives the information and trades on it). Employment at the target firm is not a requirement for tippee liability.
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Tipper and Tippee Liability