Dirks was an analyst who specialized in analyzing securities issued by insurance companies. While analyzing an insurance company, Equity Funding Co., Dirks learned from one of Equity’s former officers, Secrist, and from several employees that Equity’s assets had been vastly overstated through various fraudulent practices. Although the information could not be verified, Dirks told some of his investor customers about his suspicions, and they sold their stock in Equity. Sometime later, the fraud was exposed and Equity’s stock plummeted.

The SEC charged Dirks with a violation of Rule 10b-5.

CASE QUESTIONS

1. Under tipper-tippee liability, could Dirks be liable as a tipper or as a tippee? Why or why not?

2. Is Dirks considered an insider?