Insider trading is illegal and can lead to serious criminal ramifications for someone accused of engaging in the practice. This is typically done for financial gain. The trades may appear to be legitimate at the time they’re made, but the issue often lies in the motivation behind those trades—the reason they were made in the first place.
Essentially, insider trading involves using non-public information to make transactions. This practice is considered unfair to other investors. All trades should be executed based only on information available to the public. Someone who receives exclusive information from an insider has an unfair advantage when making trades.
How could this happen?
For example, imagine someone is a business owner or a CEO. They approach a friend who owns stock in the company and tell them that the business has been experiencing severe financial difficulties and is planning to declare bankruptcy next week. They advise their friend to sell their shares immediately to get the maximum return before the public announcement causes the stock value to plummet.
However, these situations can get quite complex. Someone accused of insider trading may not have had any intention of breaking the law. For instance, imagine their CEO friend casually mentions the upcoming bankruptcy during a conversation while having drinks and watching a football game. The accused person may claim there was no nefarious intent and that they weren’t trying to defraud other investors or violate securities regulations. They were simply making decisions based on information that came up in casual conversation.
If you are facing allegations of insider trading, be aware that the consequences can be severe. It’s crucial to understand all of your defense options at this time.