In tipping scenarios, which parties are liable for insider trading?

• A. Only the tipper who profits.
• B. Only the tippee who trades on the information.
• C. Tippers and tippees who trade on or reveal material nonpublic information.
• D. No liability for either party.

Answer: (C)

The main idea here is that liability for insider trading can attach to both the person who discloses material nonpublic information and the person who uses it. When an insider tips MNPI to someone else for personal benefit or to help a transaction, that insider breaches a fiduciary duty. If the tippee then trades on that information, or even passes it along to others who trade, both sides can be held liable. The rule recognizes that misuse of information can occur through either the disclosure or the trading that follows. This idea is broadened by theories that cover misappropriation of information as well: if someone obtains MNPI through a breach of duty and uses it to trade or to share with others who trade, liability can extend to those parties too. So, in tipping scenarios, both tippers and tippees who trade on or reveal MNPI can face insider trading liability. For example, a corporate insider who shares confidential info for personal gain makes the disclosure itself a breach, and the recipient who knowingly trades on that info bears liability; if the recipient merely passes it along to others who trade, those others can be liable as well.