Insider trading is a white collar crime that can land you in prison, result in heavy fines and impact your life for the foreseeable future. What is insider trading, though?
An insider is simply someone who has access to nonpublic information. This information, normally about a corporation or its business activities, has the potential to give this person an edge in the stock market. An insider also owns a significant amount of stock in the firm. Normally, an insider owns at least 10 percent of the firm’s equity.
Not all types of insider trading are illegal, so it could be easy for someone to confuse your legitimate trade with one that is a crime. For instance, you can legally buy and sell shares from your firm and any subsidies that you are employed by without fear of breaking the law as long as you follow the rules to do so. You need to register any transactions that you complete with the Securities and Exchange Commission in advance. Basically, it’s a tracked form of trading.
Insider trading, the illegal form, is the illegal use of undisclosed material information to gain an edge against someone or something else; in this case, the stock market. This is information that other people who are bidding and trading on the stock market don’t have. You might know, for example, how much your company has made this quarter. If you share that private information with someone who then uses it to make a trade for profit, you’ve participated in an illegal activity.
Insider trading can be tricky, and you might not realize you’ve given away important and private information. If you’re accused of this, it’s a good idea to start defending yourself early on. Our website has more information.