How do people generally get convicted of insider trading? If you have a friendship with someone in senior management of a business on the stock exchange, does that mean that if you invest in it and end up with a great ROI, you’d be investigated, charged, and potentially convicted?

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I should have rephrased my question. Would knowing an executive and making a huge profit on a couple trades be enough evidence to get convicted of insider trading?

In: 9

From what I understand (and I’ve never done trading before)

Lets say I work for a publicly traded company A, and I know something is about to make a massive impact on the stock price.

If I buy/sell or tell someone to buy/sell because of the “insider” knowledge that I have, then I’m guilty.

It entirely depends on the country, jurisdiction, etc.

In some places getting any insider knowledge that is not known to the general public makes it illegal to use that information to trade. In others you have to be an insider inside the company, organisation, etc for it to be illegal. Other people finding out and trading would be ok in those places.

Not a lawyer. Not your lawyer. Not legal advice. Not a certified trader. Not even a Reddit certified trader.
Not all insider trading gets caught. Don’t do it though. The SEC will ruin your day.

Investing in a friends company because you believe in them or think their product is worth it, is k.

Investing in a friends company because they told you “hey it’s not public yet, but we’re about to release a brand new drug that cures everything.” and then you move all the investment into it, is not k.

Say that there’s a stonk. Company X. Company X does meh on the market, not a lot of big ups and downs, just small steady growth. Investor 1 sells a few shares 2 months ago. Investor 2(a popular celebrity home show host) sells 4,000 shares last week. Company X’s drug gets rejected today by the FDA and their stock price plummets.

Gov looks at the trades and goes “huh, that’s strange.”

Then looks further, can they prove beyond a reasonable doubt in court that every element of the crime was committed?
Did Investor 2 do all of this?
> The buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, nonpublic information about the security.”

Government can prove they bought or sold a security. So that’s satisfied.

Was there a duty or relationship of trust and confidence on the basis of non public info?
If perhaps Investor 2 was tipped off from a friend who knows a friend who works at the company, then yes.
Of course, investor 2 could have been lucky. Maybe they had an order to sell if it dropped bellow a certain price?

In response the government issued a warrant for all phone and email records and there is an email from a friend saying “hey, company X is about to take a dive. Move your stuff.”

The government can now prove every element of the crime beyond a reasonable doubt. Investor 2 now gets 5 months of federal minimum security prison time.

Looking at your follow up question on another comment, no just making a huge profit is not enough to convict, neither is just knowing them, executives are even allowed to trade but it has to be public and posted publicly.
It is probably enough to get the SEC(assuming it’s in the US) to start looking at you and investigate though depending the trades.

That would be enough to investigate, but probably not enough to convict. They need to prove that you got info from the executive.

But the SEC is actually VERY tough on insider trading, unlike most other financial crimes. Such an investigation is no small matter. They put immense pressure on everyone involved. You’ll have to hire expensive defense attorneys.

I am not a lawyer. I am just a rando. Do not take legal advice from randos. And please do not commit felony insider trading. Or break any other laws while we are at it.

I think you should ask.
What would be enough proof, to be convicted for insider trading.

Because they can look into you. But you could also just have allot of faith in you’re friend. And have luck on your side.

Insider trading is when you use non public information to trade : like your buddy told you in confidence that they will announce mass layoffs and that their new product is a bust, so you sell early.

Two things are monitored :

* the volume of trade of a stock : if there’s a sudden and “lucky” spike in trade volume just before an announcement, you would typically go dig deeper : who was behind that trade, etc.
* Close circle of Senior management : if the wife of the CEO makes a trade, that’s another red flag.

But simply being friend with someone and investing in their company is not an issue, as long as you only have access to the same info as everyone else.

When I worked for a company in which I had vested stocks, during some meetings they would tell us about changes coming and stuff and certain ones they would advice that because of this information we could not make trades until such and stuff became public because it would be considered insider trading to make such decisions with information the public did not yet have.

In other words they had to tell us certain information to do our jobs, but that information could not yet be public, but that information would effect stock prices of stocks I own.

I have a related follow on question. Say I am a medical technician at a lab and I come across a test report of Steve Jobs that says pancreatic cancer. I immediately short Apple before the report reaches Jobs’ doctor himself. Can I be accused of insider trading?

Id like to add that in order to catch the eye of the SEC it would have to be a VERY large or unusual trade. Nobody is going to notice if you buy $10,000 of a stock the day before a big announcement, they’re going to notice if someone buys a billion dollars.

Maybe.

But if I go ta DM from some random guy on Reddit, there’s no way I could know that it was insider information, so I would be in the clear.

Sharing is caring.

It depends on timing and whether you actually have any significant secret info. You are allowed to use any public information you want when making trades, but you’re not allowed to use significant information that you get from an insider of the company that isn’t public.

If you buy the stock during a period where nothing significant happens for the company, and it goes up a lot over the next 5 years, and then you sell, that’s fine – the fact that you are friends with an executive wouldn’t matter in itself if you aren’t using inside information to trade.

If you buy $1 million in stock on November 14, a merger is announced on November 17, the stock goes up 30%, and you sell on November 19, the SEC would see that from trading records and would charge you. In fact, after there’s a big move in a stock, they specifically look to see who made large short-term trades and whether they have any connection to the company.

I know of an insider trading case where a law student was working on a merger as a summer intern at a law firm, before the merger was made public, he had his mother buy $100,000 of the stock of one of the companies involved, and he got caught and charged with insider trading.

0 views

I should have rephrased my question. Would knowing an executive and making a huge profit on a couple trades be enough evidence to get convicted of insider trading?

In: 9

From what I understand (and I’ve never done trading before)

Lets say I work for a publicly traded company A, and I know something is about to make a massive impact on the stock price.

If I buy/sell or tell someone to buy/sell because of the “insider” knowledge that I have, then I’m guilty.

It entirely depends on the country, jurisdiction, etc.

In some places getting any insider knowledge that is not known to the general public makes it illegal to use that information to trade. In others you have to be an insider inside the company, organisation, etc for it to be illegal. Other people finding out and trading would be ok in those places.

Not a lawyer. Not your lawyer. Not legal advice. Not a certified trader. Not even a Reddit certified trader.
Not all insider trading gets caught. Don’t do it though. The SEC will ruin your day.

Investing in a friends company because you believe in them or think their product is worth it, is k.

Investing in a friends company because they told you “hey it’s not public yet, but we’re about to release a brand new drug that cures everything.” and then you move all the investment into it, is not k.

Say that there’s a stonk. Company X. Company X does meh on the market, not a lot of big ups and downs, just small steady growth. Investor 1 sells a few shares 2 months ago. Investor 2(a popular celebrity home show host) sells 4,000 shares last week. Company X’s drug gets rejected today by the FDA and their stock price plummets.

Gov looks at the trades and goes “huh, that’s strange.”

Then looks further, can they prove beyond a reasonable doubt in court that every element of the crime was committed?
Did Investor 2 do all of this?
> The buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, nonpublic information about the security.”

Government can prove they bought or sold a security. So that’s satisfied.

Was there a duty or relationship of trust and confidence on the basis of non public info?
If perhaps Investor 2 was tipped off from a friend who knows a friend who works at the company, then yes.
Of course, investor 2 could have been lucky. Maybe they had an order to sell if it dropped bellow a certain price?

In response the government issued a warrant for all phone and email records and there is an email from a friend saying “hey, company X is about to take a dive. Move your stuff.”

The government can now prove every element of the crime beyond a reasonable doubt. Investor 2 now gets 5 months of federal minimum security prison time.

Looking at your follow up question on another comment, no just making a huge profit is not enough to convict, neither is just knowing them, executives are even allowed to trade but it has to be public and posted publicly.
It is probably enough to get the SEC(assuming it’s in the US) to start looking at you and investigate though depending the trades.

That would be enough to investigate, but probably not enough to convict. They need to prove that you got info from the executive.

But the SEC is actually VERY tough on insider trading, unlike most other financial crimes. Such an investigation is no small matter. They put immense pressure on everyone involved. You’ll have to hire expensive defense attorneys.

I am not a lawyer. I am just a rando. Do not take legal advice from randos. And please do not commit felony insider trading. Or break any other laws while we are at it.

I think you should ask.
What would be enough proof, to be convicted for insider trading.

Because they can look into you. But you could also just have allot of faith in you’re friend. And have luck on your side.

Insider trading is when you use non public information to trade : like your buddy told you in confidence that they will announce mass layoffs and that their new product is a bust, so you sell early.

Two things are monitored :

* the volume of trade of a stock : if there’s a sudden and “lucky” spike in trade volume just before an announcement, you would typically go dig deeper : who was behind that trade, etc.
* Close circle of Senior management : if the wife of the CEO makes a trade, that’s another red flag.

But simply being friend with someone and investing in their company is not an issue, as long as you only have access to the same info as everyone else.

When I worked for a company in which I had vested stocks, during some meetings they would tell us about changes coming and stuff and certain ones they would advice that because of this information we could not make trades until such and stuff became public because it would be considered insider trading to make such decisions with information the public did not yet have.

In other words they had to tell us certain information to do our jobs, but that information could not yet be public, but that information would effect stock prices of stocks I own.

I have a related follow on question. Say I am a medical technician at a lab and I come across a test report of Steve Jobs that says pancreatic cancer. I immediately short Apple before the report reaches Jobs’ doctor himself. Can I be accused of insider trading?

Id like to add that in order to catch the eye of the SEC it would have to be a VERY large or unusual trade. Nobody is going to notice if you buy $10,000 of a stock the day before a big announcement, they’re going to notice if someone buys a billion dollars.

Maybe.

But if I go ta DM from some random guy on Reddit, there’s no way I could know that it was insider information, so I would be in the clear.

Sharing is caring.

It depends on timing and whether you actually have any significant secret info. You are allowed to use any public information you want when making trades, but you’re not allowed to use significant information that you get from an insider of the company that isn’t public.

If you buy the stock during a period where nothing significant happens for the company, and it goes up a lot over the next 5 years, and then you sell, that’s fine – the fact that you are friends with an executive wouldn’t matter in itself if you aren’t using inside information to trade.

If you buy $1 million in stock on November 14, a merger is announced on November 17, the stock goes up 30%, and you sell on November 19, the SEC would see that from trading records and would charge you. In fact, after there’s a big move in a stock, they specifically look to see who made large short-term trades and whether they have any connection to the company.

I know of an insider trading case where a law student was working on a merger as a summer intern at a law firm, before the merger was made public, he had his mother buy $100,000 of the stock of one of the companies involved, and he got caught and charged with insider trading.