Fact Pattern 20-3
Dhani,an accountant for Eureka,Inc.,learns of undisclosed com-pany plan-s to market a new laptop.Dhani buys 1,000 shares of Eureka stock.He re-veals the company plans to Fay,who buys 500 shares.Fay tells Geoff,who tells Hu.Both Geoff and Hu buy 100 shares.They know that Fay got her informa-tion from Dhani.When Eureka publicly an-nounces its new laptop,Dhani,Fay,Geoff,and Hu sell their stock for a profit.
-Refer to Fact Pattern 20-3.Under the Securities Ex-change Act of 1934,Hu is most likely

Question

Quizplus · Accepted Answer

Hu is most likely liable for insider trading as a tippee, as he received inside information from a tipper (Geoff) who received it from a tipper (Fay) who received it from an insider (Dhani). The Securities Exchange Act of 1934 prohibits trading on material non-public information obtained from an insider, regardless of how many levels of tipping occurred. Therefore, Hu would be considered a tippee who traded on the basis of insider information and could be found liable for insider trading.

Fact Pattern 20-3 Dhani,an Accountant for Eureka,Inc.,learns of Undisclosed Com-Pany Plan-S to Market