Definition
Insider trading in connection with a tender offer is governed by Rule 14e-3 under the Exchange Act, which imposes a stricter standard than general 10b-5 insider-trading law. Specifically, Rule 14e-3 prohibits trading on material non-public information about a pending or contemplated tender offer if the trader knows or has reason to know the information came (directly or indirectly) from the bidder, target, or anyone working on the deal — regardless of whether a fiduciary duty was breached.
Why it matters
Rule 14e-3’s “strict liability” approach means tippees who could escape 10b-5 liability (no fiduciary breach) can still be liable for tender-offer trades. The rule was specifically designed to close that gap.
Common enforcement targets
- Investment bank junior staff and their tippees
- Law firm associates and their tippees
- Printers, IT contractors, and other service providers with deal access
- Family members and friends of the above
Compliance posture
All deal teams maintain strict information barriers, deal codenames, and trading restrictions for deal personnel and their immediate families.