What does tipper-tippee liability refer to in insider trading?

Tipper-tippee liability in insider trading pertains to the relationship between a person who provides nonpublic information about a company (the tipper) and the person who receives and acts on that information (the tippee). The correct answer highlights that the tippee is liable for using nonpublic information when they trade based on that, regardless of whether they were the original source of the information.

This liability exists because the tippee's actions can undermine the integrity of the securities markets. When a tippee trades based on insider information, they can gain an unfair advantage over other investors who do not have access to that information. As such, the law aims to penalize those who benefit from confidential data that they received from a tipper, thereby maintaining a level playing field in the financial markets.

In this context, while there are nuances about the degree of knowledge or intent, the fundamental principle is that the tippee's liability arises explicitly from their use of information that was not publicly available, making option B the most accurate reflection of how tipper-tippee liability is understood in insider trading laws.