Taking a Look at Insider Trading

October is National Crime Prevention Month. Although “white collar” crime doesn’t get as much daily news coverage, the consequences of these crimes often ruin the financial security of thousands of vulnerable people while given a select few an edge. In the US, heavy focus by the Securities and Exchange Commission (SEC) is geared toward investigating illegal insider trading.

According to the SEC, “insider trading undermines investor confidence in the fairness and integrity of the securities markets”.

To help successfully prosecute cases involving insider trading, the SEC has two rules, 10b5-1 and 10b5-2, which help to establish clarity where courts have disagreed on the act of when insider trading becomes criminal. Every day, legal insider trading takes place – where employees buy and sell stock within their own companies. Although corporate insiders engaging in this type of trading are required to report the trades to the SEC, it is not illegal. Insider trading crosses the legal boundary when securities are bought or sold in breach of fiduciary duty or nonpublic information is misappropriated.

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