What is insider trading?

What is insider trading?

On Behalf of | Aug 19, 2022 | White Collar Crimes |

Most white-collar crimes involve some type of fraud or dishonesty perpetrated by a business owner, corporate entity or an individual who chooses to act in an unethical manner while conducting business, including the practice of insider trading. The U.S. Securities and Exchange Commission notes that this practice usually involves the sale of company securities motivated by information not yet available to the public.

Insider trading may not seem like a serious crime to the casual observer, but for those who operate large corporations, the act and its consequences can have a far-reaching effect.

About insider trading

Insider trading gives companies and individuals a definite edge when it comes to the buying and selling of company securities, which give them their value on the stock market. Private information about public companies often gets leaked, leading individuals to buy or sell stocks based on that information. The abuse of such insider information is what makes this practice a white-collar crime.

Tippers

Insider trading information usually comes from a tipper, a person or entity that discovers inside information that could help someone profit from the purchase or sale of stocks that may significantly gain or lose value in the near future. This may occur due to the sale of a company, an upcoming takeover or the value of a company affected by the acquisition of a patent. These individuals, known as tippers, may either operate within a company or have an established relationship with the trader, such as a relative who works in the same corporate circle.

When authorities undercover insider trading, both the tipper and the person who abuses the information are often held legally liable.