Final Answer:
Tippees are liable under the circumstances where they receive material nonpublic information from a tipper who breached a duty of trust and confidence, and the tippee knows or should have known about the breach. The role of the tippee is to ensure that they do not trade or take advantage of the material nonpublic information received from the tipper.
Step-by-step explanation:
In the context of insider trading, tippees can be held liable if they receive material nonpublic information from a tipper who has breached a duty of trust and confidence. The tippee’s liability is contingent on whether they knew or should have known about the breach by the tipper. For instance, if a corporate insider discloses confidential information to a friend or relative, and that individual then trades on that information, both the insider (tipper) and the recipient (tippee) may be held liable for insider trading. The tippee’s liability is based on their awareness or should-have-known status regarding the breach by the tipper.
The role of the tippee in this scenario is crucial as they are expected to act ethically and legally upon receiving material nonpublic information. It is incumbent upon the tippee to refrain from trading or taking advantage of such information. Furthermore, the tippee should assess whether the information was obtained through legitimate channels and not in violation of any fiduciary duties. By exercising due diligence and ethical judgment, the tippee can avoid potential legal repercussions associated with insider trading.
In summary, tippees are liable when they receive material nonpublic information from a breaching tipper and are aware or should have been aware of the breach. The role of the tippee is to act responsibly by refraining from trading on such information and ensuring compliance with legal and ethical standards to avoid potential legal consequences associated with insider trading.