Insider trading is a federal white-collar crime that involves the exchange or trading of a company’s stock information that is not yet available to the public. Insider trading is generally committed by stakeholders or employees of the company who are privy to material information when trading said company stock, thus gaining an unfair advantage over the average investor. Those accused of insider trading may face serious consequences.
The SEC (Securities and Exchange Commission) is authorized by the U.S. government to monitor the stock market for fraud or other illegal activities. Obviously, company employees, board members, and stakeholders can trade its stock, as long as that activity is reported to the SEC. However, when these corporate stakeholders possess information that could change the value of the stock, and they trade based on that material knowledge the general public is not privy to, that’s when insider trading becomes illegal. This kind of material or private information includes things like the hiring or removal of an officer of the company, a recently-secured major account, business plans/strategies, an impending acquisition, positive/negative earnings statement, etc. Sometimes, an individual breaches their fiduciary duty by disclosing a stock “tip” to another person, and in that case, both giver and receiver can be prosecuted.