FDA Employee knows that a new drug is about to be approved. FDA Employee sits next to a complete stranger on the subway and decides she wants to help the stranger out. FDA Employee informs the stranger of the new drug, suggesting “someone could make a lot of money by trading on this.”
- A “tippee” (the stranger) can be liable for trading on confidential information when he or she knows or should know that the “tipper” (the employee) breached a duty by disclosing the information.
- The test for whether the tipper’s duty is breached is whether the tipper personally will benefit, directly or indirectly, from the disclosure.
- A personal benefit need not be pecuniary; a personal benefit can be a quid pro quo or that the tipper intended to benefit the tippee.
- Even if the tipper and tippee have no meaningful personal relationship, evidence that the tipper intended to benefit the tippee – for example, saying “someone could make a lot of money by trading on this” – can establish insider trading liability.