Which statement best describes insider trading liability for tippers and tippees?

• A. Tippers and tippees who trade on or reveal material nonpublic information breach duties and face liability.
• B. Tippers are liable only if they trade; tippees are not liable for rumors.
• C. Liability only arises if there is explicit fraud in the trade.
• D. Tippees are liable, but tippers are exempt if they disclose to others.

Answer: (A)

Insider trading liability rests on breaching duties related to material nonpublic information. When someone with a duty to keep MNPI confidential (a tipper) reveals that information or uses it for personal advantage, they breach that duty. A tippee who trades on MNPI they know or should know came from someone who breached a duty is also liable, and a tippee who trades on MNPI is liable regardless of the tipper’s intent if they know the information is material and nonpublic. Because a breach can occur either by disclosing MNPI or by trading on it, both tippers and tippees can face liability for those actions. The other statements miss key points: liability does not require explicit fraud in the trade, rumors or non-MNPI information don’t trigger the same duty-based liability, and tipping to others does not grant immunity to the tipper. So the description that captures liability for both parties when they reveal or trade on MNPI is the best fit.