Type of
Liability
Classic
Insider
Temporary
Insider
Statute /
Rule
10b-5
10b-5
Who is Liable
Test





Director
Officer
Controlling S/H
Certain employees
Corporation (if buyback)







Accountants
Consultants
Lawyers
Underwriters







Misappropri
ation
10b-5-2



Family members
Person in confidence
relationship
Person in org with rules
against it




Tipper
Tippee
(Secondary)
10b-5
10b-5


Person with FD to source of
info who shares MNI with
another person

Anyone who receives MNI
from a tipper



Tender
Offer
Short-Swing
Profits
14e-3
§ 16(b)




Anyone who gets MNI from
someone involved in tender
offer

Director
Officer
Beneficial owner (10%+ of
given class of stock)




Trades or induces trade
With party owed FD
Based on Material Nonpublic
Information (MNI)
Without disclosing
Scienter (with respect to trading on
MNI)
Trades or induces trade
With party owed FD
Based on MNI
Without disclosing
Scienter (with respect to trading on
MNI)
Covered trust/confidence
relationship TO THE PERSON
WHO TOLD YO OR policy
violation
Confidential info
Misappropriated for trading
purposes
Scienter (with respect to trading on
MNI)
Knowingly breach FD by sharing
MNI; and
Personally benefit
Tipper conditions satisfied for
ultimate source
Tippee knows ultimate source
breached FD
Offeror has taken substantial steps
toward offer
Individual trades in shares of
target based on MNI from person
involved in tender offer
1934 Act company
Person trades stocks or convertible
debt
Six-month window between
purchase and sale
How to Avoid Liability
Source


Abstain; or
Disclose to trading counterparty (if
no FD not to disclose)
TGS


Dirks fn 11

Abstain; or
disclose to trading counterparty (if
no FD not to disclose); or
Arm’s length transaction exception


Abstain; or
Get consent from source of info
Chiraella dissent




Abstain; or
make sure you do not benefit from
disclosure; or
get consent from source of info
Abstain (if you know of FD breach
by source); or
get consent from source of info

Abstain


Wait the full six months before
trading
If beneficial owner, sell stock so that
do not own >10% of given class




