CFA Practice Question
The Supreme Court decision in Dirks vs. SEC held that the prohibition against using material non-public information applies to outside recipients of information, such as financial analysts, under only one criterion. What is that criterion?
A. The communicator of the information breached a fiduciary duty to the shareholders of the corporation.
B. Disclosure of such information would immediately and significantly affect the market price of the security involved.
C. The company source is what makes the information inside and therefore it is the relationship that creates the duty.
Explanation: Liability was extended to "tippees" by the Supreme Court's decision in Dirks vs. SEC. Tippee liability derives from the liability of the insider; the tippee is sometimes said to "inherit" the insider's fiduciary duty. Liability can be imposed on a tippee only when an insider breaches a fiduciary duty to shareholders by disclosing information to the tippee and when the tippee knows, or should know, that the insider is acting improperly by disclosing information.
User Contributed Comments 8
| User | Comment |
|---|---|
| timspear | Is Dirks vs SEC really in the CFA syllabus? |
| lemec | Some court cases are implied under different insider trading theories. From what I heard, some cases do show up as answer choices on the actual exam, right or wrong. Few to know are: Miappropriation theory - US vs O'Hagan, US vs Carpenter Tender offers - Rule 14e-3 Traditional theory - Chiarella vs US |
| Muskie | These US court rulings aren't very valid for people outside the US either... |
| mpapwa22 | I think this is not a fair question for students outside US. Are we expected to follow court rulings in the USA? |
| MaresaJaden | While it seems dumb to have to know the court ruling, knowing the rule makes sense. Not knowing the answer I answered B - but maybe that is just the definition of material nonpublic information... |
| darin3200 | Are you kidding? This is not in syllabus. Only reference at all is on page 51 of the ethics book, and it mentions it as an aside, not in any level of detail. And definitely not enough to answer this question. |
| trugunna | I feel like whoever makes these questions just scrolls through the books and says "OK lets ask that" rather than actually thinking of how the questions will be presented on the exam |
| will080912 | I like the qbank of AN, but fuck this question. |