What is the consequence for a tippee using nonpublic information in trading?

Using nonpublic information to trade can lead to significant legal consequences for a tippee, who is someone that receives this information from an insider. If a tippee trades on the basis of material nonpublic information, they can be held liable for insider trading violations. This liability arises because they are effectively taking advantage of information that is not available to the general public, which undermines market integrity and fairness.

Insider trading laws are designed to promote transparency and prevent unfair advantages in the financial markets. When tippees knowingly engage in trading based on this privileged information, they contribute to the violation of securities laws, which can lead to penalties, including fines and even imprisonment in severe cases.

The notion that consequences can be avoided through proper disclosure is misleading, as best practices for compliance with securities regulations do not allow individuals to benefit from nonpublic information in any manner. The idea of receiving a bonus for insider knowledge also contradicts legal standards, as such actions are illegal and strictly prohibited by law. Legal action against tippees who use nonpublic information is robust, ensuring that all parties who engage in or benefit from insider trading are held accountable.