By:
Attorney Michael Lowe;
Date Added.: Jun 20, 2011;
Category:
Dallas
Insider trading has two definitions, and it can be both legal as well as illegal. Generally, it is when stockholders within a company purchase or sell their own company’s stocks. This information has been provided for educational purposes only, additional information can be obtained via an experienced Dallas Federal Criminal defense attorney.
Legal Insider Trading
Legal insider trading occurs between people within a company. They may be those on the board of directors within the company, and they can also be employees who work for the company. These people are indulging in a legal activity when they purchase more stock in the company they are working for, or sell the stock they own within that company. What helps to make this a legal endeavor is the fact that these people are not keeping their transactions a secret from anyone.
People who engage in legal insider trading will not have any objections to filling out the forms required of this type of deal. After they have purchased more stock, for example, and it gives them a more than 10 percent ownership in the company, they will file forms three, four and five with the Securities and Exchange Commission. Failure to do so constitutes a crime.
Illegal Insider Trading
Illegal insider trading is generally known as the trading that goes on between people who have information that the outside public does not have. An example of people who are engaging in illegal insider trading within a company are those who will give an outside person privileged information about their companies. This information m ay be believed to be an issue that will cause the company’s stock price to go down considerably. A person who has divulged this information to a select few so that they can sell their stocks before the crash has engaged in illegal insider trading.
The person who received the insider information and subsequently acted on it, is also considered to be involved in insider trading and, therefore, can be brought up on charges. The Securities and Exchange Commission (SEC) has brought several cases of insider trading to trial over the years. One example of these types of cases has been against government employees. These employees are privy to a lot of insider information that the general public does not have. Those who have shared that information with their family members, for example, have found themselves facing a judge in a courtroom over the issue.
Why Is Insider Trading Illegal?
The SEC has made it a point of ensuring that the integrity of the stock market can be maintained. Without people’s trust in the stock market, they cease to purchase stocks, bonds, money market accounts and other securities, and this would be very detrimental to the U.S. economy.
Disclaimer: This article has not been meant to serve as legal advice. If there are any questions of a legal nature, consult an attorney.
Source: sec.gov/answers/insider.htm
