FLK2 · Multiple-choice practice
FLK2 Criminal Liability — Question 47
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David is the CEO of FutureTech Ltd., a publicly traded company. He becomes aware of confidential information that the company is about to announce a breakthrough technology, which is expected to significantly increase the company’s stock price. Before the information is made public, David shares this information with his friend, Laura, who buys a large number of FutureTech Ltd. shares. Following the public announcement, the stock price of FutureTech Ltd. soars, and Laura makes a substantial profit from her investment. The Financial Conduct Authority (FCA) investigates the trades as suspect. Which of the following best describes the legal implications for David and Laura under insider dealing laws?
Answer and explanation
Correct answer: B. Both David and Laura can be prosecuted for insider dealing under the Criminal Justice Act 1993.
Both David and Laura can be prosecuted for insider dealing under the Criminal Justice Act 1993. Under the UK’s insider dealing laws, specifically the Criminal Justice Act 1993, insider dealing is a criminal offense. An insider is someone who possesses unpublished, price-sensitive information due to their position within a company. David, as the CEO, qualifies as an insider and breaches the law by disclosing this information to Laura before it is made public. Laura, who trades on this non-public information, also commits an offense by buying shares based on insider information. Both individuals can be prosecuted for insider dealing, which involves severe penalties including imprisonment and fines. David’s actions constitute a breach of his fiduciary duty to FutureTech Ltd., but more importantly, they constitute criminal conduct under insider dealing regulations. Laura’s liability arises from acting on the confidential information provided by David, knowing it was not yet public. The law does not require that FutureTech Ltd. suffer a financial loss for David and Laura to be prosecuted for insider dealing. Therefore, both David and Laura can face criminal prosecution under the Criminal Justice Act 1993.
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