Question

Dhani, an accountant for Eureka, Inc., learns of undisclosed company plans to market a new laptop. Dhani buys 1,000 shares of Eureka stock. He reveals the company plans to Fay, who buys 500 shares. Fay tells Geoff, who tells Hu. Both Geoff and Hu buy 100 shares. They know that Fay got her information from Dhani. When Eureka publicly announces its new laptop, Dhani, Fay, Geoff, and Hu sell their stock for a profit. If Dhani is liable under the Securities Exchange Act of 1934, it will be because the information on which he based his purchase of Eureka stock was:

Answer 1

Answer:

Dhani is liable under the Securities Exchange Act of 1934, because the information on which he based his purchase of Eureka stock was "non-public"

Explanation:

The U.S. Securities and Exchange Commission (SEC) has laws against illegal insider trading which it defines as; "buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, non-public information about the security."

As long as a company has not legally provided a piece of information to the public, then such information is considered "non-public".

Someone trading with non-public information is in a position to make more profits and as such, has an unfair advantage over other investors.

Dhani by trading with, and sharing "non-public information" with his friends, has committed illegal insider trading and is therefore liable under the Securities Exchange Act of 1934.