Series 65 Question of the Week

A client has received inside information from a friend about a new technology stock in the market. The client has instructed his broker to enter an order to sell 1000 shares of the stock shortly after he purchased the shares, and he is realizing a material gain of $10,000. What would be the outcome of trading on inside information if the client is convicted of the action?

I. The client and his friend would be guilty of insider trading

II. The client would be fined the total amount of his ill-gotten gain

III. The client would be subject to treble damages

IV. The client can be sued in a civil court for his actions

A. I & II

B. II & III

C. I, III, IV

D. I, II, IV

Correct Answer(s):

C. I, III, IV

Explanation:

In a case of insider trading, both the individual giving the tip and the individual receiving the tip would be guilty of insider trading. The client, if convicted of insider trading, would be subject to treble damages, (three times the amount of the ill gotten gain) as well as opening the possibility to civil litigation by shareholders in a civil court.