Question: Paul was an investment banker who sometimes bragged about deals he was working on. One...

Transcribed Image Text:

Question: Paul was an investment banker who sometimes bragged about deals he was working on. One night he told a bartender, Ryanne, about an upcoming deal. Ryanne bought stock in the company Paul had mentioned. Both were prosecuted for insider trading. Ryanne was acquitted but Paul was convicted, even though Ryanne was the one who made money. How is that possible? Strategy: Note that there are different standards for tippers and tippees. Result: Paul is liable if he knew the information was confidential and he expected some personal gain. A gift counts as personal gain. (The courts have an expansive definition of "gift"-practically anything counts. Here the information could be inter- preted as a tip to the bartender.) Ryanne was not liable because she did not know the information was confidential and that it came from an insider who was violating his fiduciary duty.