Many financial crimes cause direct harm to other parties. Embezzlement, for example, deprives a business of resources. Various forms of fraud may affect companies, government agencies or individuals. Compared with fraud and embezzlement, insider trading may not seem like a very serious issue.
Insider trading occurs when someone who has access to protected, non-public information uses their knowledge to complete financial transactions, like stock purchases. At first glance, such moves may not seem particularly harmful. However, someone using non-public information to make financial moves can cost others a lot of money and can undermine the faith that the public has in the regulated investment market.
Oftentimes, those accused of insider trading make personal purchases or sales of assets based on information they gained knowledge of through their employment. However, those accused of insider trading might not be the ones who conduct the questionable transactions that have inspired their charges.
Sharing information is insider trading too
Historically, there have been numerous cases of people prosecuted for insider trading because they shared private information with other people. Information provided to a spouse, a sibling or a neighbor might lead to one of those parties conducting financial transactions.
Knowing that a business will soon acquire another company or file for bankruptcy might lead to someone buying or selling stock, for example. When regulatory agencies recognize that someone with an indirect relationship with a business has completed questionable transactions, they may begin to investigate. The person who made the trades could be at risk, but the person who provided the information is also likely to face prosecution.
Those accused of insider trading may face financial penalties or even a jail sentence. The professional role of the defendant and the scope of the insider trading will influence the penalties that a judge could impose after a guilty plea or conviction. The maximum penalties could include up to 20 years in prison, up to $5 million in fines, a requirement to surrender any funds obtained through insider trading and a prohibition on future employment as an executive at a company.
Understanding how sharing certain private details with others could lead to criminal charges may help people more effectively manage non-public business information in ways that can better safeguard their rights and interests.