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Beware of that stock tip, you could be accused of insider trading

Are you among the millions of people across the country, including many here in Ohio, who wish they could go back in time and invest in companies like AT&T, Google or Microsoft before those companies hit it big? If only you could find a company that could explode on the stock market the way those companies did, you could retire in style, and maybe even early.

Perhaps you got a tip about a stock that may not make you millions, but could put your kids through college if the tipster is right. Would you act on it? Sure, who wouldn't find that tempting, but before making that trade, you may want to do some due diligence. Otherwise, you could find yourself facing charges for insider trading.

What exactly is insider trading?

The Security and Exchange Commission mandates that everyone have access to the same information before making trades in order keep the playing field as equal as possible among investors. The SEC's definition of insider trading has expanded in recent years in an attempt to close previous loopholes in the law.

If you receive information about a security (stock) that isn't known to the public and then purchase the stock, that's insider trading. You could face accusations of insider trading if you act on a "tip" under the following circumstances:

  • If you are a friend or family member of an employee in the corporation whose stock you buy or sell
  • If you are a member of the corporation whose stock you buy or sell
  • If you are a government official with information about the corporation whose stock you buy or sell
  • If you do business with or for the corporation whose stock you buy or sell

Corporate spies, hackers and thieves may also face accusations of insider trading, along with other criminal offenses, if they used any information discovered in order to make securities trades.

Avoiding allegations of insider trading before they happen

Even if you innocently obtain a piece of information that makes you want to purchase a stock, don't act on it until you take the following steps:

  • Make sure the information received is public knowledge
  • Be careful how you ask questions about a potential investment
  • Don't repay a favor with the confidential information of your employer
  • Make sure you trust that anyone you make trades with is above board
  • Notify the proper authorities if you believe you received insider information

Taking these steps could help you avoid allegations of insider trading. You may not receive the windfall you hoped for, but at least you won't find yourself under arrest and possibly convicted of a crime.

However, if you didn't take these steps and innocently relied on the information given to you, it could come back to haunt you. If that happens, secure experienced advice and assistance as soon as possible to help achieve the best outcome possible regarding any charges you may face.

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