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Examining Insider Trading Transactions

The phrase “insider trading” instantly invokes images of corrupt business executives plotting behind closed doors. However, properly disclosed insider trading can be legal. Stiff financial and legal penalties can result if the people involved with an insider trade do not provide information to the Securities and Exchange Commission (SEC) about the trade.

What is Insider Trading?

Insider trading takes place when the employees, officers or directors of a company trade corporate stock or other securities within the company. Another insider trading scenario involves an individual who receives an inside tip about a stock and purchases the stock based upon this improper inside information.

Properly Disclosed Insider Trading Can be Legal

With the proper disclosure, people within a company can sell stock or other corporate securities to other company employees, officers or directors. The people who wish to sell or purchase the securities must disclose the trade to the SEC. Anyone who wishes to make a legal insider trade should consult with a corporate lawyer to ensure that the disclosure is proper and complete.

An Insider Trade That is Not Reported to the SEC is Illegal

Insider trading is illegal when the people involved in a trade do not provide information about the trade to the SEC. A trade based upon improper insider information is also illegal. Company insiders who breach their fiduciary duties when trading or providing inside information about corporate securities are in violation of the law.

Criminal and Civil Penalties for Insider Trading

Illegal insider trading carries severe penalties:

* Illegal insider trading is a crime that can lead to a jail sentence.

* If insider trading damages a company’s finances, the court or the SEC may compel the people involved in the trade to make financial restitution to the company.

* Company insiders who participate in illegal insider trading will lose their jobs.

* People involved with insider trading may lose their professional licenses.

* An individual with a record of insider trading will have a difficult time finding a new job.

Legal Defenses to an Insider Trading Charge

If an individual is charged with illegal insider trading, evidence that the trade was properly disclosed to the SEC provides an excellent defense. Insiders who do not violate their fiduciary duties when trading corporate securities also have a good defense to an insider trading charge. An attorney will help a defendant accused of insider trading find any applicable defenses to the charges.


This post is courtesy of the Law Office of James Alston a Houston Defense Attorney.


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