The defense you want, the outcome you need.
free consultation here

Illegal vs. Legal Insider Trading

January 6, 2024 Posted In Criminal Defense,Gambling,Trading,Your Rights

Over the years, the term insider trading has garnered a negative connotation as media coverage and the decisions of well-known individuals have landed them in the spotlight for these actions. However, insider trading is not always an illegal offense, and individuals who buy and sell stock based on government guidelines are doing so within the law’s legal limits. Being accused of an Atlanta white collar crime is a severe offense, and steps should be taken to avoid the legal consequences.

What Insider Trading Is

Companies are run by individuals making critical decisions that continually affect a business’s profits. They initially possess information only available to a particular group of people. Insider trading occurs when individuals holding stock in a company participate in buying and selling stocks based on this information or profit from other individuals who divulge this information.

To level the playing field in the market, the U.S. Securities and Exchange Commission (SEC) developed guidelines for buying and selling stocks or security in a company to prevent individuals possessing this nonpublic information from creating an unfair market balance by using this information to benefit their interests. Whether insider trading is legal is based on the reporting of the decisions an individual with nonpublic information makes and when the action to buy and sell is taken.

Factors Determining Who an Insider is

The SEC defines an insider as any person who has access to nonpublic information about a company or those possessing nonpublic information about the company. The Federal Bureau of Investigations (FBI) and the Rules and Regulations of the State of Georgia (GA R&R) state examples of who an insider may be. An individual becomes an insider and accepts this role within ten days of possessing the information:

  • A company’s officers
  • Director
  • 10% stockholder
  • Employees obtaining nonpublic information
  • A person receiving a tip from any of the individuals mentioned above
  • Family members having access to this information
  • Government employees with access to nonpublic information
  • Any person who may be directed or influenced by someone with nonpublic information

The non-public information that is shared is considered material that has the potential to influence buying and selling decisions. The information is considered significant because of its impact on the price of a stock, either causing it to increase or decrease.

Insider Trading is a Legal Practice

Individuals classified as insiders or participating in insider trading can legally buy and sell stock in a company as long as they follow the protocol established by the SEC. Three SEC forms must be completed and submitted to participate in legal insider trading. The information used as the basis of trading must be made public information.

When Insider Trading Becomes Illegal

Taking consequential, material information that is nonpublic and buying or selling stocks or securities in a company before the information is made public makes insider trading illegal. The SEC views acting on sensitive information before the public has the same opportunity to do the same as an unfair practice. Being charged with insider trading can result in penalties, such as excessive fines, jail or prison time, banning from service in a director or officer’s role in a company, and the payment of profits and interest earned from illegal insider trading.

There are legal defenses if you are accused of illegal insider trading that should immediately be explored to provide optimal case results. Being charged does not equal a conviction. However, the outcome can be severe, and working with an experienced white-collar crime attorney in Atlanta will provide your best defense. Schedule a free review of your case with Sandy at Wallack Law to protect your future and fight charges of illegal insider trading.