Fact Pattern 31-2
Sid, a director of Tech Software Company, learns that a Tech engineer has developed a new, exciting video game. Sid buys Tech stock and tells his friend Uri, who also buys Tech stock. When the new game is released three weeks later, Sid and Uri sell their stock for a big profit.
-Refer to Fact Pattern 31-2. Under SEC Rule l0b-5, Sid would not be liable if he had waited to buy Tech stock until

Question

Fact Pattern 31-2 
Sid, a director of Tech Software Company, learns that a Tech engineer has developed a new, exciting video game. Sid buys Tech stock and tells his friend Uri, who also buys Tech stock. When the new game is released three weeks later, Sid and Uri sell their stock for a big profit.
-Refer to Fact Pattern 31-2. Under SEC Rule l0b-5, Sid would not be liable if he had waited to buy Tech stock until

Quizplus · Accepted Answer

SEC Rule 10b-5 prohibits insider trading, which is trading based on material, non-public information. In this case, Sid became aware of the new game in his capacity as a company director, giving him access to material, non-public information. By buying stock and sharing the information with Uri before the information became public, Sid engaged in insider trading. Waiting until after the public release of the game would eliminate the use of non-public information and avoid insider trading liability.