What is insider trading?
Insider trading is the trading of a corporation’s stock or other securities (e.g. bonds or stock options) by corporate insiders such as officers, key employees, directors, or holders of more than ten percent of the firm’s shares. Insider trading may be perfectly legal, but the term is frequently used to refer to a practice, illegal in many jurisdictions, in which an insider or a related party trades based on material non-public information obtained during the performance of the insider’s duties at the corporation, or otherwise misappropriated. All insider trades must be reported in the United States. Many investors follow the summaries of insider trades, published by the United States Securities and Exchange Commission (SEC), in the hope that mimicking these trades will be profitable. Legal “insider trading” may not be based on material non-public information. Illegal insider trading in the US requires the participation (perhaps indirectly) of a corporate insider or other person who is
Insider trading occurs when a broker has knowledge of information not generally known to the public. A broker who uses a sales pitches saying that he knows someone in the company in which he is recommending may be using inside information. If this is the case, you should not trade in this security and immediately confront the broker about his knowledge. If your broker has the same position in a stock as you, he is obligated to inform you when he liquidates his position. For further information, please contact the San Diego securities attorneys of Shustak & Partners, P.C., today.
‘Insider trading’ can refer to two separate financial transactions–one being perfectly legal and the other being subject to massive civil fines and possible prison time. The legal form of insider trading involves the sale of securities or stocks by officers of a company or stockholders who own more than 10% of the company. Any stockholder is free to buy or sell their shares based on public information about the company’s current or future financial outlook. A company president can sell off his shares if news of an impending bankruptcy filing is announced in the Wall Street Journal, for example. The company president is considered an insider, obviously, but his decision to sell his stock was based on information any other stockholder could have discovered. The illegal form of insider trading involves information NOT readily available to the rest of the stockholders. Whenever an individual becomes a major stockholder or a senior officer in a company, he or she must agree to keep certain
