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Attorney Bryan E. Cameron

When is insider trading considered illegal?

On Behalf of | Aug 25, 2021 | Criminal defense

If you live in New York and work for a corporation in an executive position, you may be considered an insider. An individual in this position often has information the public lacks about the company or stock ownership that amounts to over 10% of the company’s equity. However, there may be questions about whether insider trading is illegal.

What is considered legal insider trading?

With legal insider trading, an insider is allowed to buy and sell shares of the firm and subsidiaries that use them. However, for insider trading to be legal, all transactions must be reported to the Securities and Exchange Commission, or SEC. You must also have advance filings before doing the transactions.

Usually, when insider trading legally takes place, it occurs when an executive of a corporation buys back shares of the company. It can also occur when employees buy stock from the company they work for, but it’s not unusual for an executive to influence the cost of the stocks they own.

What is considered illegal insider trading?

If you are charged with illegal insider trading, you need a strong criminal defense. This type of insider trading involves using material information for profit when that information is not made public. Anyone can commit illegal insider trading, including executives, people close to them or even a person off the street. If the material information isn’t publicly known, it’s considered against the law.

For example, if an executive accidentally reveals information about his or her company’s earnings over the phone, and a passerby happens to hear it and uses the information for his or her gain, it’s considered illegal.

The SEC watches out for illegal insider trading by checking trading volumes of stocks. Whenever information is released to the public, it’s common for volumes to increase. However, if no information was made public, it signifies that illegal insider trading is taking place. The SEC will then investigate and determine who has committed the offense.

When insider trading is illegal, it’s considered a serious white-collar crime that requires a strong defense. Do not take it lightly.