You may be among the multitudes of people who believe that all insider trading is against the law. That is a common misconception. You may buy and sell your company’s stock, but you must register your trades with the Securities and Exchange Commission.
You will most likely not come under investigation for illegal insider trading as long as anyone looking for it can find the information you may use in order to make a trade, but there is no guarantee that someone will not question it. At this point, you may be wondering what separates legal from illegal trades. You may think the source of the information is the key, but that may also not affect the legality of your trades. Instead, the availability of the information is what makes the difference.
What constitutes material nonpublic information?
First, let’s look at the word “material” as it applies to stock trading. Material information is something that could affect the price of the company’s stock for better or worse. As long as the public has access to the same material information, you should not have an issue with legality. However, if that tidbit of knowledge is only available to a handful of people — usually within the company — then you may find yourself crossing an important line if you use it for financial gain.
You should know that you do not have to work for the company whose information you used to make a trade to end up under investigation for insider trading. For instance, if you have a friend or family member who does work for the company who gave you nonpublic information that will most likely materially affect the price of its stock, and you buy or sell stock as a result, you could face charges for insider trading.
You could face federal charges
If authorities suspect you of illegal insider trading, you could face federal charges as a result of an investigation. The federal judicial system is not quite the same as Pennsylvania’s court system. The procedures, rules and sentencing guidelines can vary substantially from those of the state. In order to create the best possible defense to the charges and increase your chances of achieving the best outcome possible, you would do well to work with an attorney experienced in federal court.
You have much more at stake than just your freedom. The outcome of your case will significantly affect your personal and professional lives, so an aggressive defense strategy is needed. In addition, you do not have to wait to begin protecting your rights until authorities arrest and charge you. If you discover you are under investigation for illegal insider trading, you may want to seek out the advice and support of an attorney right away.