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You're at a formal dinner when you overhear a chat about a possible

collaboration from someone you know who is the CEO from one of the merging companies. You don't participate in the discussion with him; instead, you just listen. You phone the stockbroker the next day to clarify everything you heard. He says there have been rumors, but that's all he's heard, so you place an order for 10,000 stocks at $55.00 each. The next day, the broker informs you that he contacted several of his qualitative analysis about what you heard and was able to get them in as well. As a result of this knowledge getting spread, just few hundred million shares were purchased, resulting in a $5.00 increase in the company's stock on the day that. A few days later, the acquisition is disclosed for $75.00 per share, and you submit your interests in accordance with the offer.


a. Which part and rule of the SEA (Securities Exchange Act of 1934) might applicable here, if any?






a. Is the company's CEO a tipster, and are you really a tipper, tippee, or a blend of the following?






c. Is the broker a tippee, a tipster, both, or neither, and are the customers he recommends tippees or just rumor buyers?






d. Considering the history of prosecutions in comparable cases, who is most likely to be punished, go over to jail, and/or have had to relinquish any earnings if the SEC examines the transactions and accuses all of you?

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