It seems perfectly natural and innocuous that those with the most information would want to profit from it, and doing so isn’t illegal anywhere else. So why is it prohibited to make trades based on information not everyone has? What undesirable thing does this prevent?
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>doing so isn’t illegal anywhere else
[https://www.law.cornell.edu/uscode/text/18/224](https://www.law.cornell.edu/uscode/text/18/224)
18 U.S. Code § 224 – Bribery in sporting contests
(a)Whoever carries into effect, attempts to carry into effect, or conspires with any other person to carry into effect any scheme in commerce to influence, in any way, by bribery any sporting contest, with knowledge that the purpose of such scheme is to influence by bribery that contest, shall be fined under this title, or imprisoned not more than 5 years, or both.
(b)This section shall not be construed as indicating an intent on the part of Congress to occupy the field in which this section operates to the exclusion of a law of any State, territory, Commonwealth, or possession of the United States, and no law of any State, territory, Commonwealth, or possession of the United States, which would be valid in the absence of the section shall be declared invalid, and no local authorities shall be deprived of any jurisdiction over any offense over which they would have jurisdiction in the absence of this section.
(c)As used in this section—
(1)The term “scheme in commerce” means any scheme effectuated in whole or in part through the use in interstate or foreign commerce of any facility for transportation or communication;
(2)The term “sporting contest” means any contest in any sport, between individual contestants or teams of contestants (without regard to the amateur or professional status of the contestants therein), the occurrence of which is publicly announced before its occurrence;
(3)The term “person” means any individual and any partnership, corporation, association, or other entity.
>doing so isn’t illegal anywhere else
[https://www.law.cornell.edu/uscode/text/18/224](https://www.law.cornell.edu/uscode/text/18/224)
18 U.S. Code § 224 – Bribery in sporting contests
(a)Whoever carries into effect, attempts to carry into effect, or conspires with any other person to carry into effect any scheme in commerce to influence, in any way, by bribery any sporting contest, with knowledge that the purpose of such scheme is to influence by bribery that contest, shall be fined under this title, or imprisoned not more than 5 years, or both.
(b)This section shall not be construed as indicating an intent on the part of Congress to occupy the field in which this section operates to the exclusion of a law of any State, territory, Commonwealth, or possession of the United States, and no law of any State, territory, Commonwealth, or possession of the United States, which would be valid in the absence of the section shall be declared invalid, and no local authorities shall be deprived of any jurisdiction over any offense over which they would have jurisdiction in the absence of this section.
(c)As used in this section—
(1)The term “scheme in commerce” means any scheme effectuated in whole or in part through the use in interstate or foreign commerce of any facility for transportation or communication;
(2)The term “sporting contest” means any contest in any sport, between individual contestants or teams of contestants (without regard to the amateur or professional status of the contestants therein), the occurrence of which is publicly announced before its occurrence;
(3)The term “person” means any individual and any partnership, corporation, association, or other entity.
>doing so isn’t illegal anywhere else
[https://www.law.cornell.edu/uscode/text/18/224](https://www.law.cornell.edu/uscode/text/18/224)
18 U.S. Code § 224 – Bribery in sporting contests
(a)Whoever carries into effect, attempts to carry into effect, or conspires with any other person to carry into effect any scheme in commerce to influence, in any way, by bribery any sporting contest, with knowledge that the purpose of such scheme is to influence by bribery that contest, shall be fined under this title, or imprisoned not more than 5 years, or both.
(b)This section shall not be construed as indicating an intent on the part of Congress to occupy the field in which this section operates to the exclusion of a law of any State, territory, Commonwealth, or possession of the United States, and no law of any State, territory, Commonwealth, or possession of the United States, which would be valid in the absence of the section shall be declared invalid, and no local authorities shall be deprived of any jurisdiction over any offense over which they would have jurisdiction in the absence of this section.
(c)As used in this section—
(1)The term “scheme in commerce” means any scheme effectuated in whole or in part through the use in interstate or foreign commerce of any facility for transportation or communication;
(2)The term “sporting contest” means any contest in any sport, between individual contestants or teams of contestants (without regard to the amateur or professional status of the contestants therein), the occurrence of which is publicly announced before its occurrence;
(3)The term “person” means any individual and any partnership, corporation, association, or other entity.
[Insider trading is not always a illegal](https://www.investopedia.com/terms/i/insidertrading.asp). The article gives a decent overview. In some essence a publicly traded company is regulated so that it has some financial transparency to shareholders buying and selling. Insider trading *that is not disclosed* is antithetical to that transparency, which is antithetical to the legal and financial framework of a public company.
Sidebar: Nowadays there’s a good reason to think that blatantly unfair trading practices in the US in most markets are open for prosecution, but this definitely wasn’t always the case.
Example: until 2010 with Dodd-Frank and other finance overhaul legislation, [insider trading was explicitly allowed in commodities](https://corpgov.law.harvard.edu/2015/12/04/the-first-insider-trader-in-commodities/). Famously this was part of the [climax of the film *Trading Places*](https://www.npr.org/sections/money/2013/07/19/201430727/what-actually-happens-at-the-end-of-trading-places), and so with the 2010 overhaul the specific act of using “nonpublic information misappropriated from a government source” was banned. Insider trading enforcement was also extended into commodities markets.
Plenty of other recent examples can be found — or not — in the “wild west” days of cryptocurrency markets. [The first insider trading prosecution indictment for crypto was only last year.](https://www.justice.gov/usao-sdny/pr/three-charged-first-ever-cryptocurrency-insider-trading-tipping-scheme) In general insider trading can be tough to investigate and prosecute, which is not uncommon for financial crime, but successful prosecutions still do happen regularly.
[Insider trading is not always a illegal](https://www.investopedia.com/terms/i/insidertrading.asp). The article gives a decent overview. In some essence a publicly traded company is regulated so that it has some financial transparency to shareholders buying and selling. Insider trading *that is not disclosed* is antithetical to that transparency, which is antithetical to the legal and financial framework of a public company.
Sidebar: Nowadays there’s a good reason to think that blatantly unfair trading practices in the US in most markets are open for prosecution, but this definitely wasn’t always the case.
Example: until 2010 with Dodd-Frank and other finance overhaul legislation, [insider trading was explicitly allowed in commodities](https://corpgov.law.harvard.edu/2015/12/04/the-first-insider-trader-in-commodities/). Famously this was part of the [climax of the film *Trading Places*](https://www.npr.org/sections/money/2013/07/19/201430727/what-actually-happens-at-the-end-of-trading-places), and so with the 2010 overhaul the specific act of using “nonpublic information misappropriated from a government source” was banned. Insider trading enforcement was also extended into commodities markets.
Plenty of other recent examples can be found — or not — in the “wild west” days of cryptocurrency markets. [The first insider trading prosecution indictment for crypto was only last year.](https://www.justice.gov/usao-sdny/pr/three-charged-first-ever-cryptocurrency-insider-trading-tipping-scheme) In general insider trading can be tough to investigate and prosecute, which is not uncommon for financial crime, but successful prosecutions still do happen regularly.
[Insider trading is not always a illegal](https://www.investopedia.com/terms/i/insidertrading.asp). The article gives a decent overview. In some essence a publicly traded company is regulated so that it has some financial transparency to shareholders buying and selling. Insider trading *that is not disclosed* is antithetical to that transparency, which is antithetical to the legal and financial framework of a public company.
Sidebar: Nowadays there’s a good reason to think that blatantly unfair trading practices in the US in most markets are open for prosecution, but this definitely wasn’t always the case.
Example: until 2010 with Dodd-Frank and other finance overhaul legislation, [insider trading was explicitly allowed in commodities](https://corpgov.law.harvard.edu/2015/12/04/the-first-insider-trader-in-commodities/). Famously this was part of the [climax of the film *Trading Places*](https://www.npr.org/sections/money/2013/07/19/201430727/what-actually-happens-at-the-end-of-trading-places), and so with the 2010 overhaul the specific act of using “nonpublic information misappropriated from a government source” was banned. Insider trading enforcement was also extended into commodities markets.
Plenty of other recent examples can be found — or not — in the “wild west” days of cryptocurrency markets. [The first insider trading prosecution indictment for crypto was only last year.](https://www.justice.gov/usao-sdny/pr/three-charged-first-ever-cryptocurrency-insider-trading-tipping-scheme) In general insider trading can be tough to investigate and prosecute, which is not uncommon for financial crime, but successful prosecutions still do happen regularly.
You have some specific knowledge available to you that is not published or available to the masses. Because of some privileged relationship, you have access to knowledge resulting in future gains or losses that give yourself a financial advantage.
This cheats the invested company and fellow shareholders.
You have some specific knowledge available to you that is not published or available to the masses. Because of some privileged relationship, you have access to knowledge resulting in future gains or losses that give yourself a financial advantage.
This cheats the invested company and fellow shareholders.
You have some specific knowledge available to you that is not published or available to the masses. Because of some privileged relationship, you have access to knowledge resulting in future gains or losses that give yourself a financial advantage.
This cheats the invested company and fellow shareholders.
When you buy a stock, you are literally buying it, from someone else. When you sell it, you are selling it to someone else.
Insiders have knowledge and are often involved in the decisions that make a stock worth more or less. Using that knowledge they can take advantage of people.
An analogy should make it easier to understand. Imagine, for instance, that a politician knew he was going to order a railroad to go through a specific neighborhood – but he owns a house there that is going to become worthless. So one day, he goes to your sweet retired grandmother and sells her the house for $100k. Then the next day he announces the railway and your grandmother now owns a worthless house. For all intents and purposes, he stole $100k from your granny. Does that seem honest and fair?
It is not however, only the unfairness which is at issue. Our politician could, on day three, realize he just made $100k, and decide to do it again – and eventually, instead of trying to run things well and efficiently, he is trying to run things to milk little old ladies out of their savings.
The point is – for the economy to work, we need business to try to make profits by being more efficient, more productive or more creative. We don’t want all their energy spent trying to trick stockholders into paying too much for stock – that will just make us all poorer.
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