Since 2008, insider trading has been the subject of the California news and entertainment such as the show “Billions.” The truth is that white-collar crime has been a subject of interest to the public for decades. High profile cases of illegal trading have made headlines over the past few years. There is both a legal and illegal form of insider trading.
In 1934, the Securities Exchange Act went into effect in the aftermath of the stock market crash that threw the U.S. into the Great Depression. The government hoped to restore trust in the market. Essentially, the act prohibits the use of nonpublic information in securities trading. The court system has shaped the way the law works today through court rulings.
Insider trading is not illegal by itself. As a company employee, it is legal for you to buy stocks in the company you work for. It is the deceptive or manipulative use of information when selling or buying a security that constitutes a crime. You do not even have to work for the company to be criminally charged. Outsiders who fail to disclose their knowledge of nonpublic information and trade securities are violating the law. Illegal trading doesn’t have to be for personal gain but often is.
The Securities and Exchange Commission regulates insider trading with specific rules. Violating the rules of trading can lead to a maximum $5 million fine and twenty years of prison time. Illegal trading opens you up for additional fines and penalties for related charges as well. Not only must illicit gains be paid back, but prison time and additional penalties can also increase.