In a public company, stock and other securities are available to trade. If someone possesses information about a New York company that has not been made known to the public and uses that information to make a trade, it is illegal. It makes sense, doesn’t it? If stocks and securities are available to the public, then all trading must be transparent and fair. Using non-public information to make a transaction is known as insider trading.
What many people don’t know is that there are times when insider trading is legal. There is an independent agency of the U.S. Government that was formed after the 1929 Wall Street stock market crash. This agency is known as the Securities and Exchange Commission. The SEC enforces laws to protect the market from manipulation and other unlawful activities. If someone uses private information about a company to trade stock or other financial assets, then reports his or her transaction to the SEC, it is considered an insider transaction and typically does not violate insider trading laws.
What constitutes non-public material regarding insider trading?
If someone with a reasonable understanding of the stock market would be able to use certain material or knowledge to make an informed decision on whether to buy or sell a specific asset, then this material must be made known to the public before it is used to make or influence a transaction. In short, non-public material is information about a company or its stocks and securities that is not known to the public but may be known by one or more people inside the company.
Stiff penalties for insider trading convictions
Sentencing for an insider trading conviction may include substantial fines and time in prison. If a transaction has occurred using non-public material in accordance with SEC insider trading rules, a crime has not necessarily been committed. Anyone facing insider trading charges in New York may seek white-collar criminal defense before heading to trial, which opens the door to numerous possible strategies that may help mitigate the circumstances and obtain a positive outcome in court.