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When trading stocks is a crime

Trading stocks isn’t an illegal activity, as long as the public has the same access to knowledge about company information as the trader does. The practice becomes a white collar crime when stock trades occur based upon material information unknown to the public. Laws are set up this way to ensure securities investors have a level playing field.

Trading insiders aren’t just Wisconsin stockbrokers, company executives and employees of financial institutions. U.S. Securities and Exchange Commission rules also apply to others who benefit from confidential information including service providers who, through some connection with a firm, are privy to nonpublic, stock-related information.

Under securities laws, a person who acts on a stock “tip” may be in as much legal trouble as the party who provides it. Violations can hit very close to home. Insider trading allegations may affect a family member or friend, when the basis for a stock sale or purchase is confidential company information.

Whether insider trading is above board largely depends upon timing. Under one set of circumstances, these transactions are perfectly legal but, under other conditions, constitute a crime. The only difference is when the transactions take place, before or after inside information becomes public.

A federal prosecutor cannot obtain a conviction in an insider trading case unless evidence shows a defendant knew the material information was nonpublic. Obviously, it might be easier to show a true insider, a person working in or with a financial firm, had that knowledge than someone like a relative who traded based on casual advice.

Securities laws also protect individuals who make “good faith” trades. For example, a financial agent may facilitate a transaction, based on an investor’s instructions or preset trading plan, as long as confidential information is not the decisive factor for a trade.

Securities violations are serious charges. Criminal defense attorneys protect defendants’ rights and, when possible, minimize legal consequences.

Source: U.S. Securities and Exchange Commission, “Insider Trading,” accessed Sep. 30, 2015

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