A freelance graphic designer contracted to format confidential financial statements for a publicly traded pharmaceutical company learns of an unannounced positive FDA drug approval. Prior to public dissemination, the designer shares this information with a close friend, who subsequently purchases call options on the pharmaceutical company's stock. The designer executes no personal trades. Which of the following statements regarding potential insider trading liability under federal securities laws are correct?
- The graphic designer can be held liable for insider trading as a tipper even though the designer did not personally execute any stock trades.Cevap
- The friend can be held liable for insider trading as a tippee if the friend knew or should have known that the information was material and nonpublic.Cevap
- CThe graphic designer is fully exempt from insider trading laws because independent contractors are not considered corporate insiders or fiduciaries.
- DTippee liability cannot be established unless the tippee pays direct financial compensation or a cash fee to the tipper in exchange for the confidential tip.
Cevap
The graphic designer can be held liable as a tipper despite not trading personally, and the friend can be held liable as a tippee for trading while knowing the information was material and nonpublic.
Both tipper and tippee liability can be established under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. A contractor who misuses confidential information acts as a temporary insider and incurs tipper liability by passing material nonpublic information to a friend. The tippee incurs liability by acting on that information while knowing or having reason to know of the breach.
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Tipper and Tippee Liability under Insider Trading Regulations
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