Insider Trading
Chapters in this video
- 0:00 The four elements and the diner hypothetical
- 1:09 Material nonpublic information defined
- 2:55 Material versus nonpublic: the golf course trap
- 4:18 Mosaic Theory and public information analysis
- 5:00 Insiders, outsiders, and the disclose-or-abstain rule
- 6:06 Tipper and tippee liability side by side
- 7:00 Solving the diner scenario: no duty, no violation
- 7:54 Rapid-fire exam recap
What this video covers
- The four elements that must all be present for an insider trading violation: material information, nonpublic information, breach of a duty of trust or confidence, and an actual trade executed
- Why merely possessing material nonpublic information (MNPI) without trading is not a violation, and how exam writers bait you with this zero-violation scenario
- What makes information material to a reasonable investor, and why selective disclosure to a few analysts or friends does NOT make information public
- How the Mosaic Theory protects traders who combine publicly available information through skill, research, and expert analysis
- The disclose-or-abstain rule for corporate insiders (officers, directors, and employees) and why outsiders can still violate the law by breaching a duty to the source of the information
- Why both the tipper and the tippee can be liable, even if the tipper never trades, and why "I was just passing it along" is not a valid defense
- The diner-overhear trap: why merely overhearing MNPI in a public place does not create a duty of trust, so no violation occurs
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