Which statement best describes insider trading liability in tipping scenarios?

• A. Tippers and tippees who trade on or reveal material nonpublic information breach duties and face liability.
• B. Only the tipper who profits is liable; tippees are exempt if information stays private.
• C. Insider trading liability applies only to corporate officers.
• D. Disclosure to a third party cures liability regardless of materiality.

Answer: (A)

Insider trading liability in tipping scenarios arises when a person with a fiduciary duty shares material nonpublic information and the recipient either trades on that information or discloses it to others. The leak itself is a breach of duty by the tippER, and the tippEE can be liable if they knowingly use or further disseminate the information, or trade on it with knowledge (or a reasonable belief) that it was disclosed in violation of a duty. In other words, both sides can be held responsible: the person who tips off information and the person who uses or passes it along in a way that exploits the breach.

This is why the statement describing liability for tippers and tippees who trade on or reveal material nonpublic information best captures the rule. The other options misstate the scope: liability does not rest solely with the tipper, it is not limited to corporate officers, and disclosure to a third party does not automatically cure the breach or remove liability if the information remains material and nonpublic.