What Is Insider Trading?

Two business men committing insider trading.

Insider trading gives an unfair market advantage to those who engage in it. While investors may find the advantage gained through using insider information to make quick returns, doing so can be dangerous. The Securities and Exchange Commission (SEC) regularly investigates any suspicion of insider trading and they will prosecute those who allegedly engage in this behavior. While it is rarely identified through complaints or anonymous tips, it is commonly identified through market surveillance systems. The SEC looks for and tracks abnormal trading patterns when monitoring securities markets. The SEC takes these offenses seriously as the market depends on all investors having access to the same information in order to be effective. Anyone trying to manipulate the system risks the effectiveness of the entire market.

What is Insider Trading?

Illegal insider trading is making trading decisions, such as when to buy or sell a security, based on material information relating to the trade that is not available to the public. There is usually a breach of a fiduciary duty or other relationship founded on trust and confidence involved in illegal insider trading. A person accused of this type of crime is one who owes a duty to another person or a company. To put it another way, it is using information gained through a fiduciary relationship with an entity, such as a corporation, that has not been made public and using the information to make a trading decision. 

To get a clearer picture of what insider trader looks like, it is helpful to have some examples of the forms insider trading may take. For instance, in some cases, a member of an organization may have purchased a security. Employees of a publicly-traded company may be in a position to access information that is not available to the general public. If an employee used this information to make a trading decision in the hope of making a profit when the information was eventually made public, this is insider trading.

Insider trading need not be perpetrated by an employee of a corporation. Professionals, such as bankers and lawyers, who do business with a corporation also often have access to valuable information not available to the general public. Government officials also often have access to valuable, confidential information that could be valuable in making a securities trading decision. Again, if this information is used in a trading decision by the professional who has a relationship with the corporation or by the government official, it is insider trading.

Kentucky Criminal Defense Attorney

Insider trading is one of the many white-collar crimes that can land you in a great deal of trouble. Allegedly breaching a fiduciary duty and using information not accessible to the public in an attempt to make a profit through securities trading is a serious offense and the government will make every effort to make sure a conviction sticks. If convicted of insider trading, you will not only face criminal penalties, but you are essentially at risk of losing all professional credibility. You do not want to face these severe charges alone. Dickman Law Office is here to stand up and fight to clear your name. Contact us today.

Posted in: White Collar Crimes