Fact Pattern 41-1A
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, each of whom buy 100 shares. They knows 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 41-1A. Under the Securities Ex?change Act of 1934, Hu is most likely

Question

Fact Pattern 41-1A 
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, each of whom buy 100 shares. They knows 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 41-1A. 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 received inside information from a tippee (Geoff) who received it from another tippee (Fay) who received it from a tipper (Dhani). The chain of disclosure does not matter under the Securities Exchange Act of 1934, and trading on the basis of inside information is illegal regardless of whether the information is true or false.