It is generally understood that it is unlawful to trade on nonpublic, market-moving information, or tips from someone with inside information—but what if the tip was not unlawful in the first place? When someone receives a tip of confidential information from a source who has not engaged in insider trading, can the recipient of that information, the “tippee,” be guilty of insider trading? Since tippee liability is generally derivative of the claims against the tipper, one might think that the answer should be no. However, a recent jury verdict in the Northern District of Illinois came to a different conclusion.
On January 19, 2023, following a multi-day trial, a jury found an alleged tipper not guilty while simultaneously finding the alleged tippee guilty of insider trading. Adding further confusion to the issue, the jury acquitted the tippee of conspiracy to commit insider trading. In other words, the jury squarely found that the tippee committed the crime of insider trading while the tipper did not. While this result seems inconsistent with basic principles of insider trading law, as discussed below, it finds support in controlling US Court of Appeals for the Seventh Circuit authority.
Source: Insider Trading: Can There Be a Tippee Without a Tipper? – Morgan Lewis
