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Asked by Changhao Zhang on May 17, 2024

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Cam, an accountant for Discount Inc., learns that the company's soon-to-be-announced quarterly sales figures exceed analysts' expectations. Cam tells Ed, who tells Frye, who buys 100 shares of the company's stock. Frye knows that Ed got the information from Cam. When Discount publicly announces the figures, Frye sells the stock for a profit. Under the Securities Exchange Act of 1934, Ed is most likely

A) liable for insider trading.
B) not liable because Ed did not prevent others from profiting.
C) not liable because Ed did not misappropriate any information.
D) not liable because Ed does not work for Discount.

Insider Trading

The unlawful act of conducting trades on the stock market for personal gain by exploiting privileged, non-public information.

Securities Exchange Act

A federal law governing the trading of securities, such as stocks and bonds, aimed at protecting investors and maintaining fair and orderly markets.

Misappropriate

The act of dishonestly or unfairly taking something, especially money, for one's own use.

  • Analyze the roles and responsibilities of individuals in avoiding securities fraud.
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GS
Gjulia ScadutoMay 20, 2024
Final Answer :
A
Explanation :
Ed is most likely liable for insider trading because he received material, nonpublic information from Cam (an insider) and passed it on to Frye, who traded on that information. This chain of communication and trading on insider information is typically considered a violation of securities laws under the concept of "tipping."

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