a broker has a client who makes all of the decisions in his own portfolio....the broker sees the client making gobs of cash from his trades...the client buys stock xyz@ $20 and then sells it at $29.....a few month later, the client rebuys the same xyz stock @31 and then 3 months later the stocks blasts off to 44 and the client then dumps his position.....the broker seeing the client doing very well buys calls on the xyz stock at the time of the 2nd purchase....3 months later with his options practically worthless, gets a windfall when the stock hits 44
there is now an inquiry into the client and anyone that purchased the position
the question is if the broker is committing a crime if the client had inside info
and the securities laws are indeed violated if the tippee (here the broker] received his information from an insider of the corporation (the client) and knows, or should know, that the insider breached a fiduciary duty in disclosing the information to him.
If the client was not an “insider” of the corporation but was an “outsider,” the broker may still be liable if he deduced that the client had non-public material info and then traded on it but that one is too complex to explain all the ramifications.
And whether there is both civil and criminal liability for both situations is another level of discussion.
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