Knowledge Isn't Always Power: Avoiding Insider Trading

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Knowledge Isn't Always Power: Avoiding Insider Trading

19 September 2016
 Categories: Law, Blog

If you work for or have family or friends who work for a company that is publicly traded, you might think that getting information from them about how the company is doing could help you make better investment decisions. However, as simple as that seems, it would in most cases be illegal, considered to be insider trading (so called because you're trading shares based on insider information that isn't available to everyone). There is a really fine line between insider trading and luckily-timed guesses, and if you're tempted to take action, you need to speak with a lawyer first to see if what you're planning is something you're allowed to do by law.

Unfair Advantage

The problem with insider trading is that it puts you and anyone else who has the information at a distinct advantage, allowing you to make more profits than anyone else. Despite it being cool to say everything is rigged now or that the establishment controls the market, the markets and governments of the countries that have them do try to make everything as equitable as possible.

SEC Monitoring

There are times when share owners may deem it best to sell or buy certain shares, and the practice would not be insider trading, but these circumstances are special. They are also monitored carefully by the Securities and Exchange Commission because the company would have to notify the SEC in writing of its plans. The actions of the shareholders must also be based on information that is available to the public.

Family and Friends

As tempting as it might be, someone who has knowledge of an upcoming big dip or boost in a company's share prices can't share that information even with a spouse. Any blatant trading of information for the purposes of affecting how many shares someone has can be seen as insider trading.

Lucky Guesses

This doesn't mean that you can't discuss your business with anyone. If you get fired, someone in your family finds out and decides on their own to sell stock in the company, and then the company's stock tanks, that's not really insider trading because your firing and the other person's conclusions weren't used on purpose to make a profit. It was more of a lucky, if shrewd, guess.


It's also possible to do insider trading with yourself. If you know a company is having issues and you decide on your own to buy or sell stock in that company, then in some circumstances, that could be insider trading if you had information that the stock would be affected by whatever was going on.

Rather than assuming everything will be OK and then getting into trouble, talk to a lawyer who has dealt with securities fraud and insider trading. You want to be on stable legal ground before you make a move.

For more information, contact Carter West Law or a similar firm.