What is meant by tippee liability? When does it exist?
Answer:
it relates to insider trading. the tipper/tippee liability may arise only when the tipper makes the relevant disclosure to obtain a personal benefit.
check out the boston law review on the issue
http://ssrn.com/abstract=898513...
that should answer it sufficiently
Oh, yes indeedy dee, it's real. Just ask Martha Stewart.
Section 10(b) of the Securities Act of 1933 makes it unlawful to trade on stocks based on insider information. Insider Information is information about the future prospects of a stock that is not known publicly, but only to management or another inside group.
For example, if I am a director of Acme Corporation, whose shares are trading on NASDAQ at around $50/share, and I know that Zenith Enterprises just offered to buy the company, lock, stock and barrel for $100.00 per share, I have inside infrormation that the value of the stock is about to go thru the roof. If I write a call for Acme stock at, say, $60.00 (when Acme had not traded above $55 in a year), I will make a killing when the price rises.
I will also go to jail for doing this.
If I tell my barber about the tender offer and he sinks everything he has into options on Acme stock, my barber is using information he was tipped off about, and he is liable for the same penalties that I would be.
(1) Disgorgement of my ill-gotten gains.
(2) SEC penalties.
(3) Jail.
Any questions?
(Tippee liability, by way, is discussed at length in SEC Regulation 10(b)-5. That's what you should look at if this is a real question as opposed to academic blather.
