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What is insider trading?

Many people have heard of the term "insider trading," but what does that really mean? The answer may be surprising, as it can entail both legal, as well as illegal, actions.

Legally, corporate insiders may purchase and sell stock in companies they own. But if they trade in securities they own, they must make sure that all trades are reported to the U.S. Securities and Exchange Commission.

Usually when people are charged with insider trading, they stand accused of purchasing or selling securities in a manner that breaches their fiduciary duties or otherwise compromises a trusted relationship. They must also possess certain confidential information about the securities that gives them the upper hand regarding the future or present value.

Sometimes these insider trading violations involve tipping off another person, but the individual on the receiving end of that sort of information could also be brought up on the same charges.

Insider trading cases initiated by the SEC can be brought against a wide spectrum of people, including:

-- Corporate insiders who trade their company's securities upon discovering confidential corporate information.

-- Family members, friends and other associates of corporate insiders who learn confidential information that influences their trade.

-- Those who work in a brokerage, printing office, law firm or bank and who acquire confidential information so that they can carry out the business of security trading, but they use that information for their own gain.

-- Government workers who discover corporate confidential information in the course of their daily jobs.

-- Anyone else who misappropriates or takes advantage of proprietary information from the companies that employ them.

Being accused of insider trading is a very serious matter, and the SEC prioritizes the prosecution of any violations.

Retaining legal counsel with a great deal of experience defending those accused of white collar crimes is generally recommended.

Source: U.S. Securities and Exchange Commission, "Insider Trading," accessed June 17, 2016

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