“Insider trading” is a term most investors associate with illegal conduct; however, according to the U.S. Securities and Exchange Commission, the term may be used to refer to both legal and illegal conduct. Its legal version refers to officers, directors, and employees and other corporate insiders buying and selling stock in their own companies (trading activities conducted by corporate insiders in their own securities must be reported to the SEC).

Illegal insider trading, on the other hand, refers “to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading violations may also include ‘tipping’ such information, securities trading by the person ‘tipped,’ and securities trading by those who misappropriate such information.”

Insider trading cases include cases against:

Corporate officers, directors, and employees who, after learning of substantial and confidential corporate developments, trade their corporation’s securities;

“Tippees” of corporate officers, directors, and employees, which include bBusiness associates, friends, and family members, who trade the securities after getting to know of such corporate developments;

Employees of printing firms, banking, brokerage and law who were given information on such corporate developments to provide services to the corporation whose securities they are supposed to trade;

Government employees, who learns of such information by virtue of their employment in the government; and,

All others who misuse, and take advantage of, confidential information from their employers.

Detection and prosecution of insider trading violations is one of SEC’s enforcement priorities mainly because it damages the confidence and belief of investors have in the objectivity and integrity of the securities market.

To monitor illegal insider trading, the SEC looks at the trading volumes of stocks. Increase in volume of stocks usually occur after information or material news is issued to the public; however, if volumes rise dramatically despite there being no public issuance of information, then the SEC will consider this as a warning flag and so investigate to determine who may be responsible for the unusual trading and whether it was illegal.

As explained by Houston securities litigation lawyers, the actions of a dishonest insider, investment adviser or stockbroker can be enough to cause irreparable harm to your investments, your financial security, and your future. As devastating as it can be when your investments take a hit, it is important to remember that investors are protected under a range of state and federal trade laws. As such, there is a good chance you will be able to take legal action against whoever is found to be responsible for the illegal or unethical actions that culminated in your losses.


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