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?

Question

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

Answer 1

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.

Answer 2

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.