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How prevalent is insider trading?

Any business owner, executive or board member is aware of the possibility of insider trading. But for most people, it is something that one might see in the movies or in fiction. It is hard for many to believe that insider trading could be a daily occurrence in some corporate circles.

However, insider trading might be more prevalent than many people think. Preet Bharara, U.S. Attorney for the Southern District of New York and Chair of the Bharara Task Force on Insider Trading, claims that insider trading is rampant in our culture.

Examples of insider trading

These are a few common examples of insider trading:

  • Use of an intermediary: An attorney representing a company, a board member or someone else with insider knowledge purchases shares or shorts a stock through someone else’s name.
  • Giving a tip: An executive or other employee learns of a significant development that will impact the value of a company’s stock, then tells a relative or friend outside of the company about it to warn them or to tip them off that they should buy into the stock.
  • Government knowledge: Sometimes those working in government learn about new laws or regulations that will impact a certain industry and makes stock purchases or sales based on that knowledge.
  • The overhear: When someone listens in on a confidential executive meeting and gains knowledge of a merger or other significant event in the company, then uses this knowledge to influence his or her stock decisions. Often this person is a janitor or lower-level employee who no one suspects will be listening in.

In all these cases, insider trading involves knowledge of confidential information involving the financial future of a company, and a violated duty to keep the information private. If you were sitting in a restaurant, overheard a conversation about a company and then bought or sold stocks because of this information, it would probably not be an instance of insider trading, unless you have some sort of duty to keep the information private.

If you suspect someone is guilty of insider trading or if you are facing a lawsuit alleging insider trading, make sure you work with a team of experienced securities lawyers. Insider trading is extremely serious, so you want to avoid this practice at all costs and make sure you have the right legal team around you.