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.

0 views
0

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.