Can I be prosecuted for insider trading when a third party has “tipped” the inside information without my knowledge?

Question: I work for a brokerage firm and often work at home. A visiting neighbor asked to use my computer to check her e-mail. I forgot that I had not closed the window I had been using to do my work.  My neighbor saw confidential, non-public information about a nearly completed corporate buy-out.  She did not discuss what she saw with me, but she went home and told her husband. The next day he sold all of his stock in the company that was going to be sold; two days after that, the acquisition was made public. The SEC is investigating him and his stock transactions. I’m afraid I’m going to be prosecuted as an insider trader even though I did not tell him anything nor give his wife permission to tell him anything. Can the SEC come after me?

Response:  Insider trading occurs if you know material confidential information about a public company – such as a takeover – and you tell others about it before the information is released publicly.  The prohibition applies to you, your family members, and your neighbors and friends.  Persons found liable for tipping inside information, even if they did not trade themselves, may face a penalty of up to three times the amount of any profit gained or any loss avoided by everyone in the chain of tippees.

You should immediately consult an experienced attorney who specializes in securities law defense in both the civil and criminal arenas.   Not only could you be investigated by the SEC for insider trading, you may also need to defend yourself against a claim by your employer or the client(s).  Although you may not have knowingly tipped the information, you could still be targeted with claims that you breached your fiduciary duty to your employer and its clients by failing competently to secure the confidential insider data in your possession from prying third party eyes. 

Answered by Jamilla Moore

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