Series 79 practice questionhardMNPI and Insider Trading
Which of the following scenarios could expose both the tipper and the tippee to liability under Rule 10b-5?
- AA tippee receives information accidentally and never trades
- BA tipper provides nonpublic information for a legitimate business purpose and the tippee does not trade
- CA tippee receives information but does not know it is nonpublic
- DA tipper intentionally discloses MNPI to a friend who trades on it, and the tipper receives a personal benefit✓ Correct answer
Explanation
Why D — A tipper intentionally discloses MNPI to a friend who trades on it, and the tipper receives a personal benefit
Both tipper and tippee are liable under Rule 10b-5 if MNPI is intentionally disclosed for personal benefit and the tippee trades. If no trading occurs or there is no personal benefit, liability is less likely.
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