Question

Rico does not work for Street Bikes Company,but wrongfully obtains inside information concerning the firm.Based on the information,Rico buys and sells Street Bikes stock for personal gain.The Securities and Exchange Commission prosecutes Rico,arguing that he is liable because he stole information rightfully belonging to another.This argument is​:_________.

A) the blue-sky theory.
B) the misappropriation theory.
C) the free-writing prospectus theory.
D) the tipper/tippee theory.

Answer 1

B) The misappropriation theory

Explanation:

The misappropriation theory states that a person who uses insider information in trading securities has committed securities fraud against the information source.

In this case, Street Bikes Company is the information source because the information rightfully belong to them, Rico trades Street Bikes Stocks because he stole the firm's information which does not belong to him, according to the misappropriation theory, Rico is liable to the offence of insider trading.