The duplicitousness of insider trading effects more than just shareholders, as the effects are often felt throughout the community. By using information not readily available to the public to make financial transactions, insiders effectively are abusing the system and committing white collar crimes for their own benefit.
Many people mistakenly believe that all insider trading is illegal, but that is not the case. Generally, it is legal for corporate insiders, including managers and employees, to purchase or sell their own company’s stock based on information available to the public. However, these insiders are not legally allowed to buy or sell securities when they possess material, non-public company information. Taking advantage of one’s access to this confidential information by using or disclosing this private information for the purposes of financial gain is a breach of fiduciary duty owed to the company.
Intentionally or unintentionally “tipping” insider information, or giving important private information to someone who has no connection with the company, may also result in criminal charges for insider trading. For example, if one tells a family member about the financial status of their company or let them know about an upcoming merger or acquisition, and they buy or sell stock based on this information, one can be liable for their insider trading, even if they do not personally gain anything from their dealings.
Illegal insider trading is a serious crime with serious consequences. A conviction may result in up to 20 years in prison and up to $5 million in fines for individuals, and up to $25 million for businesses.