Trading, Accounts & Prohibited ActsQuestion 254 of 398
An executive tells his neighbor that his company will announce a surprise merger tomorrow. The neighbor buys the stock that afternoon and profits when the news breaks. Which statement is correct?
a.Only the executive can be liable; the neighbor did nothing wrong
b.No violation occurred because the neighbor is not an employee
c.The neighbor (a tippee) can be liable for insider trading for using material nonpublic information
d.Insider trading applies only to trades of over one million dollars
Explanation
A tippee who trades on material nonpublic information tipped in breach of a duty can be held liable for insider trading, and so can the tipper. Liability does not require being a corporate insider or a minimum dollar amount.
Law Reference: Insider Trading and Securities Fraud Enforcement Act of 1988Practice all 398 questions free — no signup required.
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