Insider trading is when someone uses special information that they have to make a financially beneficial stock trade. No one else could’ve made the same decision because they didn’t have the same information. An example of this could be if someone knows the owner of a major company that is about to go through a merger. They could get information about the lucrative merger before the public, and they could then buy stock in the company, which will balloon once the merger actually happens.
Those who face these accusations may say that they were simply making wise decisions with the information they had on hand. Wouldn’t anyone have done the same? Why is this illegal?
The importance of public trading
The issue here is that these companies are open for public stock trading. You don’t get accusations like this with a private company. But once they have an initial public offering (IPO), then they take investments from the population at large.
In order for the system to be fair to all investors, everyone needs to have the same information to act on. Once the news of a merger breaks, for example, many investors will use this information to buy or sell as they see fit. But someone who has insider information in advance is taking advantage of the situation. They defraud the public of the same chance, which is why using that information for financial gain is illegal.
If you’ve been accused of insider trading or other types of financial crimes, those accusations are nothing to take lightly. The ramifications can be very serious, and they could have an impact on your career, as well. Make sure you are well aware of the legal options at your disposal.