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What you should know about insider trading

If you invest in the stock market, you are probably familiar with the term ‘insider trading’ and how it is associated with the illegal trading of securities. What you may not know, however, is that not all insider trading is actually considered illegal. Instead, there are actually two types of insider trading.

The legal form of insider trading is when employers or employees who work within a corporation buy and sell stock in their own company. As a corporate insider, they are allowed to make these types of purchases and sell the stock they own freely, but must report these types of trades to the United States Securities and Exchange Commission.

Illegal insider trading, on the other hand, generally refers to a type of white collar crimes that involves the selling or buying of a security based on receiving information about the company that has not yet become public. As an example, if you were told that a product made by your company is about to be recalled and then sold your shares of stock in the company before the announcement was made, this could be considered insider trading. It could also be considered insider trading to buy shares while the price is low if you were to become privy to information that could cause the stock price to shoot up based on positive information that has not yet been released.

While you may think that you have to be directly related to the sale of the securities for insider trading to occur, it is also a trading violation to provide a ‘tip’ to someone about the nonpublic information. In these cases, both the person providing the tip and the person who used the information about the tip could both be in violation of insider trading laws.

Defendants who are accused of insider trading may find it beneficial to consult a Wisconsin criminal attorney who specializes in this type of white collar crime.

Source: U.S. Securities and Exchange Commision, “Insider Trading” Sep. 29, 2014

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