Insider Trading Illegal: What You Need to Know to Stay on the Right Side of the Law

Insider trading is the practice of buying or selling securities based on information that is not available to the public. The practice of insider trading is illegal in many countries, including the United States, Canada, and the United Kingdom. It is important to understand the laws surrounding insider trading to avoid legal consequences, such as fines and imprisonment. This article will provide an overview of insider trading laws, their legal implications, and how to stay on the right side of the law.

Why Insider Trading Is Illegal

Unfair advantage 

Insider trading gives insiders an unfair advantage over other investors. Insiders have access to material non-public information that can significantly affect the price of a company’s securities. By trading on this information, insiders can make profits at the expense of other investors who do not have access to this information.

Breach of trust 

Insiders owe a duty of loyalty and trust to their company and its shareholders. By trading on non-public information, insiders breach this trust and violate their fiduciary duties.

Market integrity 

Insider trading undermines the integrity of the financial markets. It erodes investor confidence and can lead to a perception that the markets are rigged in favor of insiders.

Securities laws

Insider trading is illegal under securities laws in most jurisdictions. Violations of these laws can result in significant fines, penalties, and even criminal charges.

Negative impact on the economy 

Insider trading can hurt the economy as a whole. It can lead to a concentration of wealth among a small group of insiders while undermining the broader goals of transparency, fairness, and competition in the markets.

Insider Trading Laws by Country as of 2021

Some of the Insider Trading Laws by Country as of 2021 are as follows

Insider trading laws vary from country to country. In the United States, insider trading is illegal under the Securities Exchange Act of 1934. In Canada, insider trading is illegal under the Securities Act. In the United Kingdom, insider trading is illegal under the Criminal Justice Act of 1993. Other countries may have less strict laws or no laws in place. It is important to research the laws in your country to ensure that you are aware of the legal implications of insider trading.

Legal Implications of Insider Trading

The legal consequences of insider trading

The legal consequences of insider trading can be severe. In the United States, insider trading can result in fines up to three times the amount of profits gained or losses avoided, as well as imprisonment for up to 20 years. In Canada, insider trading can result in fines of up to $5 million and imprisonment for up to 10 years. In the United Kingdom, insider trading can result in imprisonment for up to seven years and an unlimited fine.

Cases of high-profile insider trading scandals

There have been several high-profile insider trading scandals. One of the most well-known cases in the United States is the Martha Stewart case. Stewart was convicted of insider trading in 2004 and served five months in prison. Another notable case is the Rajaratnam case, in which the hedge fund manager was convicted of insider trading and sentenced to 11 years in prison.

Regulatory authorities responsible for enforcing insider trading laws

Regulatory authorities responsible for enforcing insider trading laws vary by country. In the United States, the Securities and Exchange Commission (SEC) is responsible for enforcing insider trading laws. In Canada, the Ontario Securities Commission (OSC) is responsible for regulating insider trading. In the United Kingdom, the Financial Conduct Authority (FCA) is responsible for enforcing insider trading laws.

How to Stay on the Right Side of the Law

Tips on how to avoid insider trading

Be aware of the information you have access to: As a company insider, you may have access to non-public information that could affect the price of securities. It is important to be aware of the information you have access to and to avoid trading on this information.

Keep your personal and professional life separate

Avoid discussing sensitive information about a company with family, friends, or anyone who is not authorized to have the information. This is considered “tipping off” and is illegal.

Understand the rules and regulations 

It is important to understand the rules and regulations surrounding insider trading in your country. This includes knowing what constitutes insider trading and the legal consequences that come with it.

Follow your company’s insider trading policy

Many companies have insider trading policies in place to prevent insider trading. These policies may include blackout periods during which insiders are prohibited from trading and restrictions on trading in certain securities. It is important to be aware of these policies and to comply with them at all times.

Consult with legal counsel 

If you are unsure whether a trade may be considered insider trading, consult with legal counsel. They can help you understand the legal implications of your actions and ensure that you comply with insider trading laws.

Guidelines for Company insiders

Understand your obligations: As a company insider, you must protect confidential information and not use it for personal gain. It is important to understand your obligations and to follow them at all times.

Be aware of blackout periods 

Many companies have blackout periods during which insiders are prohibited from trading. These periods may be put in place around earnings releases, major announcements, or other events that could affect the price of securities. It is important to be aware of these periods and to comply with them.

Report all trades 

Insiders are required to report all trades in their company’s securities to regulatory authorities. It is important to ensure that all trades are reported in a timely and accurate manner.

Avoid tipping off

It is illegal to share confidential information with anyone who is not authorized to have it. This is known as “tipping off.” Insiders should avoid discussing sensitive information about the company with family, friends, or anyone who is not authorized to have the information.

Follow the company’s insider trading policy 

Many companies have insider trading policies in place to prevent insider trading. Insiders should be aware of these policies and should comply with them at all times. This may include restrictions on trading in certain securities, blackout periods, and other rules designed to prevent insider trading.

Training and Education

Insider trading policies may require insiders to undergo training and education on the rules and regulations surrounding insider trading. This is to ensure that all insiders are aware of their obligations and responsibilities and are able to comply with the policy.

Conclusion

Insider trading is a serious offense with severe legal consequences. It is important to understand the laws surrounding insider trading in your country and to avoid trading on non-public information. By following these guidelines, you can ensure that you stay on the right side of the law and avoid legal consequences. Remember, insider trading laws vary by country, so it is important to research