Trying the most complex issues
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Trying the most complex issues for over 30 years.

What is insider trading?

On Behalf of | Jun 15, 2020 | Securities Litigation

As you lead or grow a business, you may be privy to information that your shareholders do not have. You may think there’s nothing wrong with using it to your personal financial advantage. And you may believe doing so will help you reach a position of greater security. But these transactions qualify as insider trading, which has serious consequences.

Understanding insider trading

Insider trading is the buying or selling of a company’s securities or stock based on non-public knowledge. It also refers to tipping non-public information to an associate who uses it to their financial advantage. And it can take the form of using tipped information to your gain as well. Using this information in such a manner gives you an unfair edge in the marketplace. Since these facts remain private otherwise, you have breached your fiduciary duty to your shareholders.

Yet, insider trading is legal in some instances. If you want to buy or sell shares or securities in your business, you can do so based on information that is public knowledge. You will need to disclose these trades through the United States Securities and Exchange Commission (SEC). And you must do so no more than two business days after your transactions.

Insider trading’s consequences

If you engage in legal insider trading, you will not face any consequences so long as you file your trades with the SEC. Yet, the penalties for illegal insider training are severe because it qualifies as securities fraud. Depending on the nature of your transactions, you could face up to 20 years in prison. You might also face a fine of up to $5 million for any illegal trading or tipping you engage in.

Illegal insider trading is a serious crime. By understanding its consequences, you can take precautions against it during transactions. If you face accusations