When most people hear the phrase “insider trading” they generally associate it with illegal activity. Insider trading is one of the most commonly prosecuted type of white collar crime. Some forms of insider trading are legal and others are illegal. Insider trading can be legal when corporate insiders, such as directors, officers, and employees buy or sell stocks in their own company. When corporate insiders buy or sell stocks they must report the trades to the Securities and Exchange Commission.
The illegal forms of insider trading usually involves the insider taking advantage of some secret information that they have obtained as a result of their position. Insider trading violations can arise from an insider giving information to a person that is not an insider. A securities violation can be pursued against the person that passed the information along as well as the person that took advantage of the illegal insider information.
Criminal insider trading cases are frequently brought against corporate officers, directors, and employees that made stock purchases or sales after receiving inside information. Also, employees of law firms, banks and brokerage firms have been prosecuted for using information that they learned from working with companies. In addition to insiders and those that work with them, friends, family, business partners and other individuals that have received information from insiders of companies that traded stocks after receiving the information.
In addition to private employees and individual, government employees have been accused of insider trading by using information that they have gained in their official capacity in order to profit personally. Also, employees of companies have gotten into trouble for using information that they have learned as part of their employment. Anyone that is accused of insider trading or suspects that they might be accused of insider trading should consult with an attorney immediately.
Many people that are accused of insider trading are not convicted of insider trading but instead of making false statements involving the alleged insider trading. This was the case in the prosecution of Martha Stewart. The laws surrounding insider trading are specific, complicated and do not always seem consistent or fair. Understanding what is illegal and what is not illegal and where the line between the two is, both in terms of the law as well as how it is generally interpreted and enforced, can be extremely important.