Insider trading is illegal. You’ve likely heard stories of even very famous individuals getting caught and jailed due to this practice. The issue is that it may feel like what you’re doing is fine and within-bounds until the authorities come knocking.
How insider trading works
In the simplest terms, insider trading is just the practice of executing trades based on non-public information. Trading is supposed to be fair, in theory, for everyone. This means that only public information can be used for those trades.
But what if you know someone who works for a local company? Maybe they’re the owner or a high-level executive. You are friends and spend time together. One day, while enjoying a drink by the pool, your friend mentions that their company — which you own stock in — is getting ready to announce a brand new type of technology. They think it’s going to be huge and the value of the company will soar.
To you, this just feels like a helpful tip from a friend as the two of you were making conversation in your personal lives. It’s not like you set out to commit fraud. But if you buy more stock before the public announcement of that new tech comes out, have you now committed insider trading because you knew about the upcoming announcement in advance?
Insider trading is a serious allegation
If you do find yourself facing allegations of insider trading, take them seriously. They can follow you for the rest of your life. Take the time to look into your options with an experienced legal team.