Insider Trading
When an individual who has access to important information which is not available to the public about a company's stock or securities, it is illegal for him or her to use this information in trading. For example, Vice President A in a clothing company, who knew that the company was about to file for bankruptcy (and this was not known to the public), would not be able to use this information to then trade/sell all of his stock in the company or to advise others to sell.
Insider trading is considered to be a form of securities fraud or
investment fraud. The U.S. has the strictest form of insider trading laws of all countries in the world. The SEC (Securities and Exchange Commission) is ever-vigilant in its investigation and prosecution of insider trading and all forms of securities fraud. A defendant may face
federal charges for this offense, with penalties depending on the following factors:
- Whether this is the defendant's first conviction for insider trading;
- The amount of money involved; and
- Whether any individuals or companies suffered economic harm as a result of the defendant's conduct.
Though some are in favor of legalizing all forms of insider trading, it is highly unlikely that this will ever occur in the United States, due to the amount of importance placed on maintaining the success and integrity of the securities market. Individuals who have access to "insider" information are required to report their trades to the SEC in an attempt to discourage and identify illegal insider trading.
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