What is Insider Trading?
Illegal insider trading is defined as follows: “the illegal use of information available only to insiders in order to make a profit in financial trading” – Merriam Webster
‘Illegal Insider Trading’charges can result in a maximum fine of $5,000,000 for individuals ($25,000,000 for companies) and a federal prison sentence of up to 20 years! With all charges, if you have been accused of this, the first thing to do is to speak with a white collar crimes attorney.
Why is Insider Trading Illegal?
Insider trading is considered illegal for a few reasons. First, when an employee or a broker for someone is a fiduciary of said person, corporation, government, etc., he or she gives his or her trust and loyalty, acting in the best interest of the person, business or government he or she is representing. Giving clandestine information to someone for financial gain that conflicts with one’s fiduciary duties is not only illegal, but also unfair.
Second, the stock market is supposed to be an even playing field for everyone (hence the term, “gone public”). For someone to have secretive information that no one else has and use it for their own financial gain is very unethical. Stephen Cutler, who is the Director of Enforcement of the SEC eloquently made the following statement in reference to the Martha Stewart case:
“It is fundamentally unfair for someone to have an edge on the market just because she has a stockbroker who is willing to break the rules and give her an illegal tip. It’s worse still when the individual engaging in the insider trading is the Chairman and CEO of a public company.”
It is similar to being the only person to have the answers to a major test, and you win a scholarship to an Ivy League university because of it. It is cheating, unless it cannot be proven.