In December of 2001, Martha Stewart allegedly sold 4,000 shares of FDA stock only days before the shares changed from $50 per share to $10. Reportedly the shares dropped when the FDA had decided not to endorse a new cancer drug on the market from ImClone. Three years later, both Stewart and her broker were charged with insider trading. Stewart received the more lenient punishment of five months in prison with a fine of $30,000 dollars. Insider trading is information or knowledge of certain securities or investments before it has been announced to the public. Usually when a person has this type of information, they quickly sell their portion of the shares in order to avoid an unfortunate financial decrease.

What is less commonly known about insider trading is that there are two types – only of one of which is legal. A legal type of insider trading is when those involved in companies purchase shares in their own companies. Directors and employees must file their insider trading decisions with the US Securities and Exchange Commission (SEC) in order to make the transaction legal. The SEC is in charge of making sure that investors are protected through maintaining an organized and just market system. The SEC has charged and convicted many different people with insider trading. The cases involved:

• Employees and directors who sold their companies insider trading secrets to unlawful persons;
• Friends, members of family, or associates of legal inside traders who have been tipped about their companies financial situation;
• Lawyers, bankers, and brokers who have sold insider trading information with other business in order to procure their own benefits with the specific business;
• Certain government and financial printers who have found out about disclosed information when working; and
• Any other person who has taken advantage of information that was not lawfully given to them

The New York Times reported that government officials in the House Financial Services Committee have voted on tighter restrictions on insider trading. Allegedly, rumors have been circulating that many in Congress participated in insider trading. All accusations of Congress participating in illegal insider trading were denied. The bill, allegedly introduced in 2006 by a Democratic representative, proposes that any transaction of $1,000 dollars and more must be reported in a 90 day period.

Yet, in USA Today, it is alleged that many in the public think that insider trading is a legal act for Congress members to participate in. USA Today reports that this is not the case due to the misappropriation theory which excludes those uninvolved in corporate companies from the knowledge of insider trading scoops. Under this same act, it is alleged that any type of information should not be told to others until it is made public in the market place.

If convicted, penalties for insider trading can include both jail time and a fine. The SEC may choose to order reimbursement of the received funds through the act or choose varied forms of punishment through a civil trial. One type of punishment that might be incurred is an injunction which would order the illegal act to stop. The SEC may also request a civil punishment or order that the punishment be three times more than the unlawful compensation. By law, they cannot charge more than $1,000,000 dollars or three times the amount of the illegal financial gain. If you are involved in a company and privy to reserved information, it is important to be aware of your restrictions and rights. For further information, check the SEC and other government websites.