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What is insider trading?

On Behalf of | Feb 15, 2018 | Firm News, White Collar Crimes |

We all hear that investing is a good idea. And when it comes to trading stocks, one often thinks of the investments they could make by taking these steps. However, buying and selling stock can be complex and confusing for some, fearing that they might be the next one facing criminal liabilities for doing the wrong thing or taking tips from others. But one should note that when it comes to insider trading, this is considered both legal and illegal depending on the situation.

What is insider trading? It is the trading of a public company’s stock or other securities, such as bonds or stock options, by an individual that has obtained access to nonpublic information about the company. Because this is seen as unfair by many investors, depending on the details of the matter, this is considered illegal.

The legal version is when corporate insiders, such as officers, directors and employees, buy and sell stock in their own company. However, when corporate insiders trade in their own securities, this must be reported to the SEC.

On the other hand, illegal insider trading is when stocks and bonds are bought or sold in possession of nonpublic information about the security. Obtaining this information typically means that there has been a breach in fiduciary duty or another relationship of trust and confidence. Insider trading is also viewed as when a tip is given to a person, and based on this tip, takes action with their securities. Because this ace undermines investor confidence in the fairness of the market, those accused of insider trading could face prosecution.

Those facing charges for this white collar crime should understand that they have defense options. The penalties following such a charge could be severe, making it imperative that steps are taken to initiate a defense.

Source: Sec.gov, “Insider Trading,” accessed Feb. 10, 2018


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