Fact Pattern 21-3 (Questions 23-26 apply)
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 21-3. If Dhani is liable under the Securities Ex?change Act of 1934, it will be because the infor?mation on which he based his purchase of Eureka stock was

Question

Quizplus · Accepted Answer

Dhani is liable under the Securities Exchange Act of 1934 because the information on which he based his purchase of Eureka stock was not yet public, and he used this non-public information to make a profit. This is known as insider trading, which is illegal under the Act. Even though the information may have been true and material, the fact that it was not yet public makes it illegal to use for trading purposes.

Fact Pattern 21-3 (Questions 23-26 Apply)