Legal Definitions - tipper

A tipper is an individual who possesses confidential, significant information about a company or its securities that has not yet been made public (often referred to as material non-public information). This person then shares that sensitive information with another individual, known as a "tippee," for the purpose of enabling the tippee to make investment decisions, or for some other personal gain or benefit.

Essentially, a tipper is someone who leaks inside information, knowing or expecting that it will be used for trading or other related advantages before the general public has access to it.

Here are some examples illustrating the role of a tipper:

• Corporate Executive: Imagine the Chief Financial Officer (CFO) of a major software company learns that the company's quarterly earnings report, which is still weeks away from public release, will show significantly lower profits than analysts expect. Before the official announcement, the CFO discreetly tells a close friend, "You might want to reconsider holding onto your shares in our company for much longer."

  In this scenario, the CFO is the tipper. They possessed material non-public information (the poor earnings forecast) and selectively disclosed it to their friend, intending for the friend to act on it to avoid financial losses.

• Investment Banker: An investment banker is working on a highly confidential deal for a client to acquire a smaller competitor. During a family gathering, the banker mentions to their cousin, who is an active investor, that "Company A is about to make a huge strategic move that will definitely impact its stock price positively." The banker knows the cousin holds shares in Company A.

  Here, the investment banker acts as the tipper. They had access to material inside information (the impending acquisition) and shared it with their cousin, enabling the cousin to potentially profit from the stock increase before the news became public.

• Legal Counsel: A lawyer is representing a biotechnology firm in a patent dispute that, if won, would grant the firm exclusive rights to a groundbreaking new drug. Before the court's decision is publicly announced, the lawyer tells their spouse, "It looks like our client is going to have a very good week. You should consider buying some of their stock."

  The lawyer is the tipper in this situation. They possessed material non-public information (the likely favorable court decision) and selectively disclosed it to their spouse, with the clear expectation that the spouse would use it for financial gain.