Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

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Treble damages, as a civil penalty for insider trading, refers to what?

The original profit made or loss avoided
Three times the profit made or loss avoided
Twice the profit made
Fixed penalties of $1 million

The correct answer is: Three times the profit made or loss avoided

Treble damages refer to a specific type of statutory penalty established to deter insider trading by imposing a significant financial consequence on those who violate the laws. When someone is found to have engaged in insider trading, the law permits the court to impose damages that are three times the amount of profit made or loss avoided due to the trading activity. This triple damage structure is intended to not only compensate affected parties but also to serve as a strong deterrent against engaging in illegal insider trading practices. In this context, the correct answer emphasizes the punitive nature of the penalty, reinforcing the seriousness with which such violations are treated under securities law. This mechanism aims to discourage individuals from taking advantage of non-public information for financial gain, thereby promoting fairness and integrity in the marketplace. The other answer options do not accurately reflect the threefold nature of the damages associated with insider trading violations, which is crucial to understanding the legal implications and punitive measures in such cases.