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What is insider trading?

On Behalf of | Jun 30, 2021 | White Collar Crimes

If you are accused of insider trading, understand that this is a serious allegation. White collar crimes are typically charged at the federal level, which means that you could face not only fines but also jail time.

Insider trading occurs when someone who has material, non-public information about a stock makes trades with that private knowledge. Depending on when the trade is made, this may or may not be legal.

Illegal insider trading happens when the information has not yet been made public, so only those with private information can make successful trades. Usually, people do this to benefit from a stock prior to a big move, such as if the stock will soar because of a new service a company offers. The inside trader may purchase a greater number of stocks at a low rate to try to make a profit.

Using inside knowledge to trade stocks is illegal

Using inside knowledge of material, non-public information to make a trade is against the law. The reason that it’s illegal is because the Securities and Exchange Commission (SEC) wants to keep the market as fair as possible.

Does it count as insider trading if the non-public information was shared with someone else?

Unless the information was widely shared with the public, it’s still insider trading when someone else benefits from inside knowledge of a stock or business. For example, if you have inside knowledge about your company and share it with your cousin, they may trade a stock based on it. If so, then this insider knowledge was used to influence their decision and profit from the stock market. That’s illegal and could result in a charge against you and your family member.

How can you avoid insider trading trouble?

To avoid trouble, such as by being accused of insider trading, your best bet is not to share or use any information about your company (or another person’s company) to make stock purchases or trades. If you do, then you could be harshly penalized. Penalties include significant prison time and expensive fines. If you’re accused of this crime, build a solid defense as soon as possible.

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