All the investors in the stock market want to buy and sell stocks with high returns. Sometimes, this will influence them to use illegal means to gain an unfair advantage while trading stocks; insider trading is one of those illegal means.
Insider trading is the practice of buying and selling securities of a company while having crucial information not yet released to the public.
Insider trading is prohibited by the SEC because the commission requires all publicly traded companies to give all the information about their securities to the public. If you know an individual using insider trading to sell or buy securities, you can report insider trading to the SEC through an experienced SEC attorney.
The opinion on insider trading is divided; some support it while others condemn it. Read on for all you need to know about insider trading.
Non-Public Information
To report insider trading to the SEC, you have to prove that there is non-public information giving a few traders an advantage in the market. Non-public information is information that is not yet legally revealed to the public, and only a few people within the company possess that information.
The information also needs to have the capability of influencing the value of the securities in the market. For example, if one executive has a government report about the state of the country’s economy, it will influence the stock market.
Acting on the Non-Public Information
Also, the individual has to use non-public information to sell or buy securities. Once the individual learns about the information, they will decide to act upon it by selling or buying stocks. For example, an executive of a sugar exporting company may overhear new regulations on exporting sugar that will benefit their company. Once in possession of such information, they go ahead and buy more shares of the company before the news reaches the public domain, and later sell some of the company’s shares at a higher price benefit.
Real-Life Examples of Insider Trading
Martha Stewart, a businesswoman, and television personality, was involved in insider trading in 2001. Martha Stewart had shares in ImClone Systems, a company dedicated to manufacturing medicine. The company was developing a cancer drug, but the FDA did not approve the drug.
Martha Stewart got wind of this information before it was public and sold all her shares in the company, before its stock fell by 16%, to avoid taking a loss. She was found guilty of insider trading and was sentenced to five months in prison, and paid a fine of 30,000 US dollars.
Penalties for Insider Trading
If a person is found guilty of insider trading, they can be sent to prison, ordered to pay a fine, or both. The maximum prison sentence one can get for insider trading is 20 years in federal prison. The maximum amount of fine one has to pay for insider trading is 5 million dollars.
The SEC can also institute civil proceedings against a guilty party to recover the money they earned through the illegal trade. The SEC can also ban an individual from serving as an executive in public traded companies.
The SEC has numerous rules on deciding what insider trading is; you should note that not all insider trading is illegal. There are numerous factors that the commission will consider before prosecuting someone for insider trading. For example, if the trading did not offer the individual an advantage over the other investors, they may not be charged with the offense of insider trading. The individual also needs to have a fiduciary duty to the company.
Contact an SEC attorney
Trading companies and other securities institutions might often have to worry about being investigated by the SEC. Sometimes they might not even be aware they are being investigated, as the SEC can conduct informal investigations. You could Learn More about how the different kinds of investigations work and what you as a company could do to combat them. The first thing to do is to get in touch with an SEC attorney right away.
Conversely, if you have information of someone using non-public information to trade in the market, you can report them to the SEC. You can use the SEC website or offices. You can also reach out to an SEC attorney and inquire about how you can report insider trading incidents to the SEC.
