Fact Pattern 22-1 Trudy Was Hired by Food Corporation to Handle a Products

question 58

Multiple Choice

Fact Pattern 22-1
Trudy was hired by Food Corporation to handle a products liability lawsuit brought against it alleging that it distributed dangerous dog biscuits. Trudy's investigation brought to light facts establishing that the biscuits were not defective and that the problem actually involved improper retention policies on the part of retailers. Trudy is aware that this information will result in the stock of Food Corporation increasing dramatically. Trudy immediately buys shares of Food Corporation and tells her fiancé, Frank, about the expected increase as well. Trudy tells Frank because she wants to borrow money from him for the trade and also because she believes that his investment will enable them to take a nicer honeymoon. Frank initially resists because of his training in business law and his concern that trading on the information would violate federal law, but he ends up going along with Trudy because he too wants a nice honeymoon. Trudy's suspicions come true. The lawsuit is dismissed, the stock increases dramatically, and she and Frank go on a great honeymoon. The day after they return, an investigator from U.S. Attorney's Office interviews her regarding her trades and those of Frank.
-Refer to Fact Pattern 22-1.Is there a basis upon which to hold Trudy liable for a securities violation for disclosing to Frank the information regarding the likely dismissal of the lawsuit?

• A) Not unless she had signed a confidentiality agreement with Food Corporation.
• B) Yes, she could be held liable as a tipper.
• C) Yes, she could be held liable as a tippee.
• D) Yes, she could be held liable as a remote tippee.

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Definitions:

Secretory Cells

Cells that are specialized in producing and releasing various substances such as hormones, enzymes, and mucus into the bloodstream or onto epithelial surfaces.

Alveolar Walls

Thin layers of tissue forming the boundaries of the air sacs (alveoli) in the lungs where gas exchange occurs.

Bronchi Inflammation

The swelling and irritation of the bronchial tubes, often leading to coughing, mucus production, and breathing difficulties.

Fibrous Connective Tissue

A type of connective tissue rich in collagen fibers that provides support and strength to various structures within the body.