What is insider trading?

On Behalf of | Sep 3, 2021 | White Collar Crime

When you get into trading assets, you must follow all written and unwritten rules. Obeying trading laws and regulations is crucial in cultivating a strong relationship with the market. It is one of the most important things you can do.

In order to do so, you also need to have a firm understanding of the actions that are considered illegal. This includes insider trading.

Examples of insider trading

The U.S. Securities and Exchange Commission looks into insider training. Insider trading occurs when individuals use inside information to make decisions regarding their stocks. In other words, it gives someone an unfair advantage over everyone else who does not have access to the same information.

For example, you work for a company that recently announced its intention to file for bankruptcy. The company announces this information to its employees first. It intends to tell its customers later. This information is technically not yet available to the public. If you sell your stocks in advance of the bankruptcy announcement, you will have committed insider trading.

Why is it a crime?

Insider trading can cause a huge stir in the market because it disrupts the trust between the market and investors. If people think the market is not fair, or that it works against them, they are less likely to participate and buy stocks. This can destabilize the entire market.

Individuals convicted of insider trading can be subjected to hefty penalties. Not only do they face fines of up to $5 million for individuals, they can also receive prison sentences of up to 20 years.

If you are facing such charges, you should contact an experienced attorney to help you with your case.

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