Insider trading the legal version is when corporate insiders, officers, directors, and employees buy and sell stock in their own companies. When corporate insiders trade in their own securities, they should then report their trades to their necessary financial regulators through the reports insiders must file.
The Securities Exchange Commission (SEC) is a financial regulator that’s enforced by the United States (U.S.) securities law. Its mandate is to protect the investment from the effects of insider trading through its SEC rules. It also has agreements with many countries throughout the world and this gives the SEC access to people who violate U.S. securities law outside the U.S.
But when Insider trading is illegal it refers to the buying or selling of a security by insiders who possess material that’s still not public. The act puts insiders in breach of their fiduciary duty. Because the information isn’t available to other investors, a person using such knowledge is trying to gain an unfair advantage over the rest of the market.
And this is when cases can be bought by the SEC against those liable of illegal trading. Examples of insider trading cases that have been brought by the SEC are cases against:
- Corporate officers, directors, and employees who traded the corporation’s securities after learning of significant, confidential corporate developments.
- Friends, business associates, family members, and other “tippees” of such officers, directors, and employees, who traded the securities after receiving such information.
- Employees of law, banking, brokerage and printing firms who were given such information to provide services to the corporation whose securities they traded.
- Government employees who learned of such information because of their employment by the government.
- Other persons who misappropriated, and took advantage of, confidential information from their employers.