Articles
Insider Trading: How To Stay Out Of Trouble
myStockOptions Editorial Team
Don't become a mugshot. Trading company stock, or tipping others to buy or sell it, can get you into serious legal trouble when you know important confidential information about your employer or other companies you work with. This article explains how to avoid insider trading.
Up In The Air: How Boeing's 737 Max Problem Teaches Key Points About Insider-Trading Prevention
Matt Simon and Bruce Brumberg, myStockOptions.com
After a door panel blew off a Boeing 737 Max 9 in mid-flight, a hypothetical question came to our attention. Would it be illegal insider trading to trade Boeing securities while you're a passenger in the damaged Boeing airliner before the news has been reported and thus made public?
How To Avoid Insider Trading: Cautionary Tales For Employees From The Pandemic
Matt Simon, myStockOptions staff writer
With allegations involving insider trading and tipping during the height of the Covid-19 pandemic, recent charges brought by the SEC and federal criminal prosecutors are jolting cautionary tales for anyone who trades company stock. Read on for the horror stories.
Prevent A Martha Stewart Moment: Insider Trading In Company Stock
Bruce Brumberg
It is all too easy to forget the insider-trading rules if you suddenly see a chance to profit or avoid loss through a simple stock trade. The well-publicized case against TV celebrity Martha Stewart presents valuable lessons that are more important than ever in our age of stock market volatility and Wall Street scrutiny.
How Executives And Directors Can Avoid SEC Troubles Before Trading Their Company Stock (Part 1)
Merrill Freed and Steven Schraibman
Your advisors say now is the time to buy or sell your company stock or to exercise options. But before you proceed, you'd better understand the securities laws that apply. Otherwise, you risk losing your profits, paying big fines, attracting unwanted media attention, and perhaps even going to jail. The storm of controversy over the backdating of stock option grants shows how closely executive stock sales are scrutinized.
Presentation! Insider-Trading Prevention
Bruce BrumbergmyStockOptions.com
Editor-in-Chief Bruce Brumberg developed this PowerPoint presentation for talks and meetings on the prevention of insider trading. myStockOptions Pro members may request permission to use it for a limited number of company employees or financial-planning clients.
FAQs
What is insider trading? Do you have to be an insider or executive to commit it?
Insider trading is illegal. It occurs when someone...
What is insider tipping?
Tipping is telling someone material confidential information about a public company, whether in...
Does insider trading include buying and/or selling stock of a supplier, customer, or competitor of the company I work for?
The classic insider-trading case is using material nonpublic information (MNPI) about the company that you work for to decide to trade that company's stock. However, using MNPI that you learned on the job to buy stock in another company is...
NEW! I know material nonpublic information (MNPI) about my company but my decision to sell company stock is completely unrelated, as I just need cash now. Could I still be charged with insider trading?
In short, yes. When you know material nonpublic information (MNPI) about a company, i.e. confidential information that will move its stock price when it is publicly disclosed, you should not...
Why are insider trading and tipping illegal?
Insider trading and tipping violate the concept of fair capital markets...
How do civil and criminal insider-trading cases differ?
Most insider-trading cases involve civil suits and penalties...
What are the civil penalties for insider trading?
Anyone found liable for trading on inside information must pay the federal government...
What are the criminal penalties for insider trading?
Under Section 32(a) of the Securities Exchange Act, as amended by the Sarbanes-Oxley Act of 2002, individuals face up to...
Will the SEC really investigate and prosecute small insider-trading violations?
When irregular trading activity is detected in a company's stock, all transactions made during the period under review are scrutinized...
Can I receive a bounty for providing information about someone who has committed insider trading?
Under Section 21A(e) of the Securities Exchange Act, the SEC may award...
How do the SEC and the stock exchanges detect insider trading? Aren't stock-trading records confidential?
To detect irregular patterns of trading, each stock exchange uses a surveillance operation. When it detects suspicious trading, the surveillance entity reports the matter to the SEC, which now wields a formidable array of digital technology to track and investigate insider trading...
Do the rules of insider trading and tipping apply only in business contexts? Do they also apply to what I tell friends and family?
The rules apply to any confidential, important information that you reveal to anyone about your company. The SEC adopted...
Does it matter whether the person who violates the insider-trading laws lives outside the US?
The SEC has reciprocal agreements with many countries...
After I leave the company, can I still violate insider-trading or Section 16 rules by exercising options or selling company stock?
The prohibition against insider trading and tipping continue to apply to trades in your company stock even after you stop working there...
Do Rule 144, Section 16, and the insider-trading rules apply to gifts and donations of company stock by senior executives or directors?
Not surprisingly, anything you do with your company stock as an executive or director raises issues involving the securities laws, potential SEC reporting requirements, and liability risks...
My company's stock price has substantially dropped. As an executive, I want to buy the stock on the open market to show confidence to investors and analysts. Do I still need to worry about insider trading and liability for short-swing profits under Section 16?
Yes. Your intentions do not matter under the securities laws. You cannot...
What if at the time of sale I possessed inside information that did not affect my decision to sell? For example, what if I decided months before to exercise and sell stock when the stock price reached a certain point?
The law is evolving on this question of "use" versus "possession" of information. The SEC adopted rules in late summer 2000, but they are untested...
With insider trading, do I need to be caught in the act to be investigated or prosecuted?
No. Unless someone who is part of a scheme confesses, as in the movie Wall Street, direct proof rarely emerges...
Is lying during an SEC investigation a crime?
Yes. A witness who lies under oath...
Can a grant of stock options be an insider-trading violation?
Generally, no violation occurs if you receive a grant of stock options when you know secret stock-price-moving information about your company. However, the SEC has focused severely in recent years on...
Can the exercise of stock options be an insider-trading violation?
It depends on whether you hold the shares at exercise or sell them. If you merely exercise stock options when you know material nonpublic information about your company, the exercise itself is not a violation, according to most experts. However...
Can a purchase of shares through an ESPP ever be considered insider trading?
Generally, there is no violation for the enrollment at the start of the offering period or for the...
If I know something important about our company or another one, when can I use that information to trade? Does the window period always tell me when?
After the information is publicly disclosed, you should wait a reasonable amount of time for...
What are blackout periods and window periods?
Blackout periods are times when some or all of a company's employees are prohibited from trading its securities (sometimes including the exercise of stock options). Window periods are times when trading by those employees is allowed. A company imposes a blackout when it...
How do blackout periods affect my ability to sell shares?
To prevent insider trading, and to reduce the need to constantly monitor and evaluate individual requests to trade stock, most companies prohibit employees from trading their stock during certain timeframes. These interludes are known as...
How do blackout periods affect stock option exercises and the tax treatment?
Most companies do not prohibit exercises of stock options during blackout periods (but see an exception). However, you need to be careful about...
If my restricted stock vests during a blackout period or when I know secret stock-price-moving information, can I be charged with insider trading?
You cannot be charged just for the vesting of restricted stock, as no sale of securities occurs. However...
Can I commit insider trading by buying or selling company stock in my 401(k) when I know important, confidential information?
Whether you trade your company stock in your regular brokerage account or in...
Can an insider-trading violation bar me from serving as an officer or director?
Courts have the authority to bar you from corporate office or directorship if your conduct demonstrates...
Can I sell my company stock through a blind trust, or another type of trust, as a defense against insider trading?
Using a blind trust goes beyond the protections of Rule 10b5-1 plans, yet has more restrictions. These are irrevocable grantor trusts with...
Introduction
I am an expert in the field of insider trading and securities laws. I have extensive knowledge and experience in this area, which I will demonstrate by providing you with accurate and detailed information. Insider trading is a complex topic that involves legal and ethical considerations. It is important to understand the rules and regulations surrounding insider trading to avoid legal trouble and maintain the integrity of the financial markets.
Insider Trading
Insider trading refers to the buying or selling of a company's securities based on material nonpublic information (MNPI) about the company. It is illegal because it undermines the fairness and transparency of the financial markets. Insider trading can occur when someone who has access to confidential information about a company, such as an employee or executive, trades the company's stock based on that information.
Insider Trading vs. Insider Tipping: Insider trading involves trading securities based on MNPI, while insider tipping refers to the act of disclosing material nonpublic information to others who then trade on that information. Both insider trading and insider tipping are illegal and can result in severe penalties.
Who Can Commit Insider Trading: Insider trading is not limited to insiders or executives of a company. Anyone who possesses MNPI about a company and trades securities based on that information can be charged with insider trading. This includes employees, consultants, family members, friends, or anyone who receives the information from an insider.
Legal Consequences: Insider trading is a serious offense that can lead to both civil and criminal penalties. Civil penalties may include fines, disgorgement of profits, and injunctions. Criminal penalties can result in imprisonment, fines, or both. The severity of the penalties depends on various factors, including the nature and extent of the violation.
Insider Trading Prevention
To avoid insider trading and the legal consequences associated with it, it is crucial to adhere to the following guidelines:
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Know the Rules: Familiarize yourself with the laws and regulations governing insider trading in your jurisdiction. These laws may vary from country to country, so it is essential to understand the specific rules that apply to you.
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Maintain Confidentiality: Do not disclose MNPI to anyone unless it is necessary for legitimate business purposes. Be cautious about discussing sensitive information, even with family and friends, as it can potentially lead to insider tipping.
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Trading Windows and Blackout Periods: Many companies have trading windows and blackout periods to restrict trading by employees. Trading windows are specific periods when employees are allowed to trade company securities, while blackout periods are times when trading is prohibited. Adhere to these restrictions to avoid any appearance of impropriety.
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Rule 10b5-1 Plans: Consider implementing a Rule 10b5-1 plan, which allows insiders to establish pre-determined trading plans for buying or selling company securities. These plans can provide a defense against allegations of insider trading if they are properly established and followed.
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Consult Legal Counsel: If you have any doubts or questions about whether a particular trade may constitute insider trading, seek advice from legal counsel or compliance professionals. They can provide guidance based on your specific circ*mstances and help ensure compliance with the law.
Conclusion
Insider trading is a serious offense that can have severe legal and reputational consequences. It is important to understand the rules and regulations surrounding insider trading to avoid legal trouble and maintain the integrity of the financial markets. By following the guidelines mentioned above and staying informed about the latest developments in securities laws, you can protect yourself and make informed investment decisions.
