What is insider trading?

On Behalf of | Dec 21, 2020 | White Collar Crimes |

The New York stock market is supposed to be an open playing field. Ideally, everyone has access to the same information, which means that no one has an unfair advantage over other traders. Sometimes, people can’t help it if they hear insider information about a business. But if they take action on it, that could be considered insider trading, which is a form of white-collar crime.

Insider trading: What is it?

Insider trading is the practice of trading stocks based on private information that’s not available to the public. For example, if you had a friend who worked for a popular company, he or she may tell you that the company’s sales have dropped in the past few months. As a result, you may decide to sell your stocks in that company, so you can get ahead of the major downturn. This may sound harmless, but it’s actually a common form of white-collar crime.

Insider trading is illegal because it gives you an unfair advantage over other people trading in the stock market. If you sold your stocks after the company’s decreased sales became public knowledge, that wouldn’t be illegal. But if you sell your stocks based on insider information, you’re making an unfair profit. This also applies to buying stocks and making other actions based on insider information.

The Securities and Exchange Commission (SEC) keeps an eye on the stock market, so it can spot anything that looks like insider trading. If it notices a lot of shares being bought or sold for no visible reason, the SEC may investigate the situation. People may be acting on an upcoming announcement that hasn’t yet become public knowledge.

What if you’re accused of insider trading?

The SEC investigates cases as carefully as possible, but that doesn’t mean you can’t be falsely accused. If you’re being charged with insider trading, your reputation may be on the line. This also goes for other forms of white-collar crime, like fraud, embezzlement and pyramid schemes. To protect yourself and your business, it’s important to hire an attorney who can handle your case in court.

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