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Tippers and Tippees
According to the misappropriation theory, someone who receives a stock tip based on MNPI is also considered to be held to the same standards as someone who works for the company. Let's look more closely at stock tips and the difference between a tipper and a tippee.
Both Tippers and Tippees are Liable
Not every person who is guilty of illegal insider trading works for the company in question. According to the SEC, when a trade is made based on MNPI, both the tipper and tippee can be held legally liable and face potential consequences.
Tipping Is Illegal, even if the tippee doesn’t make a trade on it
Anyone who has access to MNPI must keep it confidential. Passing on confidential information to another person is illegal. Even if the tippee doesn't make a trade based on the information in question, passing along MNPI is an illegal act in itself and can be prosecuted by the SEC.
Individuals in a Tipping Situation
Anyone who has access to MNPI, and gives another individual a stock tip based on that information, is potentially committing a crime. Let’s talk about these types of individuals.
Enforcing Liability
Tipper/tippee liability is enforceable even if the two parties do not know each other closely. It is always best to keep MNPI private, regardless of the situation.
Tippee
A tippee is the person who receives a tip based on MNPI and makes an illicit trade based on the information received.
Tipper
A tipper is someone who has access to MNPI and provides that information to an outside source who uses it to make an illicit trade.
What is a Tipper?
Tipper
A tipper is someone who has access to material, non-public information (MNPI) regarding a security, company, or industry. This information can be obtained through various sources, such as private conversations, insider knowledge, or having a privileged position within an organization. The tipper then provides this MNPI to an outside source, such as a broker, trader, or investor, who uses it to make an illegal trade. The tipper is also guilty of insider trading if they benefit from the trade.
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What about Social Media Tips?
Receiving stock tips on social media is just fine as long as the tips are not based on MNPI.
- Do your due diligence and research
- Make sure the information is publicly available before trading
- This liability can include stock tips from online or social media sources
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Avoid being a Tipper or Tippee with Insider Trading Training
Companies should provide guidance on the appropriate use of confidential information and provide resources to help employees identify potential insider trading situations. By providing Insider Trading training from EasyLlama, employees will have a better understanding of the rules and regulations that govern insider trading and be more likely to avoid any potential legal repercussions.
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The Most Comprehensive online Insider Trading Training
The online training course from EasyLlama walks learners through which transactions are prohibited, how to avoid them, and the procedures to follow in order to trade in public marketplaces in an ethically and legally acceptable manner. The course covers:
Chapter 1: How to Avoid Insider Trading
Chapter 2: Material, Non-Public Information
Chapter 3: Who Is An Insider?
Chapter 4: Tippers and Tipees
Chapter 5: Enforcement and Penalties
Chapter 6: Types of Illegal Trades
Chapter 7: Best Practices for Avoiding Illegal Insider Trading
Chapter 8: What Have We Learned?
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