What should you know about insider trading?

| Jun 13, 2020 | Firm News

Those involved in Florida’s business circuit know what is or is not kosher in the business world. One of the most common illegal activities you may hear mentioned is insider trading. 

You may know that it is illegal, but do you know the why behind this? It is important to understand why insider trading is illegal. It is as important to know how it can hurt others. 

The damage of insider trading 

Merriam-Webster defines insider trading as buying or selling stocks using secret information. This information comes from a person inside the company, hence the name. This act is also illegal. Insider trading comes in many forms. In many situations, it involves one informant on the “inside”. They keep tabs on a company’s stock for someone on the outside. But even people within the company can commit insider trading. For example, a corporate accountant notices their company may head toward bankruptcy soon. Before reporting their findings, they sell their stocks. Under law, this is insider trading as well. 

Unfair advantages go to only a few 

Why is insider trading illegal? It gives an unfair advantage to the people with the connections. The stock market is an equal playing field for everyone. When someone operates on secret information, it gives them an unfair advantage. 

Those accused of insider trading can and do often face severe penalty if convicted. The maximum prison sentence is up to 20 years. Individuals face a criminal fee of up to $5,000,000. Non-natural persons face fees of up to $25,000,000. This may include entities who have public securities trades. In other words, do not underestimate how much trouble you can get into for engaging in this activity.