• May 2019
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Insider Trading

When someone with access to material, nonpublic information about a company or its stock or security instruments uses that information in the sale or purchase of the security. The most conspicuous individuals to commit insider trading would be company executives, company employees with inside information, friends and family members of these individuals.

Less conspicuous (but still noticeable) would be bankers, lawyers and other professionals who have the company as a client but do not work for the business. Their access to sensitive information would make the SEC take notice if they profited handsomely from timely trades related to the company.

Technically, anyone with nonpublic information about a company (who trades on that information) would be an inside trader, even if that person’s connection to the company was almost non-existent. A bartender who serves a talkative CEO might hear about some important financial information that the company hasn’t made public yet. If he acts on it by buying or selling stock in the company, he would be committing insider trading. Of course, it is far more difficult for the SEC to link someone to insider trading if they have no obvious connection to the company.

While most insider trading is illegal, it should be noted that there is a legal form of insider trading as well. Those with access to inside information are able to buy and sell stocks in a company, but they need to register the transactions with the SEC ahead of making a trade. If this potentially applies to you, please research all of the SEC’s requirements before making any trades.

 

EXAMPLE:

An employee learns that his company is about to lose a great deal of money, sending the stock price plummeting. He quickly calls family members who own stock in the company and tells them to sell right away. This employee later writes a best-selling novel in the peaceful solitude of his prison cell after being convicted of insider trading.