Fact Pattern 27-2
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 27-2.Under the Securities Ex?change Act of 1934,Hu is most likely

Question

Fact Pattern 27-2 
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 27-2.Under the Securities Ex?change Act of 1934,Hu is most likely

Quizplus · Accepted Answer

Hu is most likely liable for insider trading because he obtained material, non-public information from a tippee (Geoff) who obtained it from a tipper (Fay) who obtained it from a tipper (Dhani) who was an insider of Eureka, Inc. The fact that Hu is farther down the chain of disclosure does not necessarily absolve him of liability if he knowingly traded on the basis of insider information. Additionally, the fact that the information turned out to be true does not excuse Hu's use of material, non-public information to trade securities.