Series 63 practice questionmediumProhibited Practice: Insider Information
An agent learns confidential material information about a public company and passes it to a client, who trades on it. Under the USA, which is TRUE?
- AOnly federal law applies to insider trading
- BBoth agent and client may be liable for fraud✓ Correct answer
- COnly the client is liable
- DThis is permitted if the client is sophisticated
Explanation
Why B — Both agent and client may be liable for fraud
Both the agent and the client may be liable under antifraud provisions (USA Section 501) for trading on material nonpublic information. State and federal law (A) can both apply. Sophistication (D) is irrelevant.
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