Insider Trading Laws & Penalties
One of the most well-known cases of insider trading in recent history is that of Home Decorating, Cooking, and all things domestic icon Martha Stewart. Reportedly Stewart was warned ahead of the collapse of one of the companies she had invested in to sell off her shares. The broker who had warned Stewart had “inside” knowledge of the impending collapse and she took his advice selling all 3,928 shares saving herself from a $45,673 loss on her investment. Unfortunately, because of her arrest and conviction in her participation in “insider trading” her billion dollar company has suffered more than that amount in loss and reputation.
What is Insider trading?
Generally speaking insider trading refers to buying and selling securities while in possession of nonpublic information about said security. In the case of Martha Stewart, she was able to sell her securities before the public knew of the company’s impending downfall and subsequent stock loss.
Insider trading laws have been in place since 1934 after the stock market crash of 1929. It has evolved over time but the laws are regulated by the US Securities Exchange Commission (SEC) that makes sure investors are not victims of fraud.
Who can be convicted of insider trading?
Both the “tipper”, the person with inside information, and the “tipped” the person receiving insider information can be in violation of insider trading laws when the action of buying or selling is done as a result of such information.
Who is an insider?
An insider can include officers, directors, stockholders, and employees of an entity whose securities are publically traded. These people are privileged to certain information that the public may not be privy to and are not allowed to trade securities for personal gain with nonpublic information. Insiders are also not allowed to disclose nonpublic information to anyone else such as family, friends, business or social acquaintances, etc. so that they aren’t able to benefit from such information. Insider’s families must also comply with insider trading laws.
What are the penalties for insider trading?
Some people may think that white collar crimes are “victimless” but they are not and they hold severe criminal, civil, and monetary penalties. The maximum prison sentence for an insider trading violation is 20 years in prison. The maximum fine for individuals is 5 million dollars.
Being charged with Insider trading is a very serious thing and needs representation immediately. The Morrison Law Firm understands what is needed to defend white collar allegations and is available to review your case. Call (913) 780-6666 or send an e-mail to schedule a free consultation. We are located in Olathe and serve people from the Johnson County area.
