Insider Trading Transactions

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What are Insider Trading Transactions?

Insider trading occurs where corporate stock is sold between employees, officers, or directors within a company.  When this occurs, the transaction must be reported to the Securities Exchange Commission (SEC).  An insider trade can be legal if it is reported correctly and if no fiduciary duties are breached.

On the other hand, the term “insider trading” can also refer to illegal insider trade transactions.  These include instances where the non-public information is used in such a way that violates a party’s duty of fiduciary loyalty.  For instance, if an employee was entrusted with company information, and this information was used without authorization to make an inside trade, this could be considered illegal.

Also, insider trading transactions can frequently involve what is known as “tipping”.  Tipping occurs where one person “tips” information to another person regarding profitable stock trades.  Insider trading can also involve other corporate securities besides company stock.

What are Some Legal Penalties for Insider Trading Violations?

Insider trading can result in various legal penalties.  First, insider trading transactions can often cause the company (and other companies as well) financial losses.  In many cases, the employee or corporate director may be sued by the company for the losses caused by the inside trade.  If this happens, the worker may be required to return their profits to the company, and may even have to pay for additional expenses connected with the trade. 

Also, insider trading is frequently listed under criminal statutes as a white collar crime.  This is usually a misdemeanor charge that can result in criminal fines and/or a sentence in jail.  In addition, the defendant may suffer other consequences, such as a loss of their job, and difficulties in finding similar lines of work in the future.

Are There Any Defenses to Insider Trading Transactions?

One of the main defenses to insider trading charges is that no fiduciary duties were broken.  Again, insider trades can happen in a way that is legal; the main requirement is usually that the trade be reported to SEC.  Thus, proper reporting of an inside trade can prevent legal claims and can save both the employee and their company a great deal of time and resources. 

If you’re unsure about the status of a trade, it’s best to either refrain from the trade, or to double-check with to see that the trade won’t be illegal.  It may be necessary to consult with a lawyer to determine the legal status of a specific financial decision or corporate action.  Insider trading laws can be subject to frequent change over time. 

Do I Need a Lawyer for Help With Insider Trading Transactions?

Insider trading must occur under very specific conditions in order to be considered legal.  You may wish to hire a business lawyer if you need assistance with an insider trade or with any other financial matters.  Your attorney can inform you of the proper course of action, and can provide you with legal representation in the event that you need to file a lawsuit.

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Last Modified: 01-30-2013 03:51 PM PST

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