Which statement about insider trading liability for misusing confidential information is correct?

• A. Only the person who trades on the information is liable.
• B. Only the company bears liability.
• C. The company and the tipper are always liable.
• D. The tipper and tippee may be liable.

Answer: (D)

Insider trading liability can attach beyond the person who actually trades on the nonpublic information. If confidential information is disclosed in breach of a duty, the one who discloses it (the tipper) can be liable for that breach. The person who uses or trades on that information (the tippee) can also be liable, if they know or should know that the information was disclosed improperly and they use it to trade. This reflects both the tipper’s breach of duty and the tippee’s participation in trading based on that breach. The company can be liable in some situations, but not automatically in every case; liability depends on whether the company itself breached a duty or misused information. Therefore, the statement that the tipper and tippee may be liable captures the possible theories and the range of parties who can bear responsibility.