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Do you know insider trading is sometimes legal?

On Behalf of | Jul 30, 2023 | White Collar Defense

When a person in West Virginia or elsewhere buys or sells a public company’s stock using private, material information about the company, it is illegal. When the court hands down a conviction regarding such crimes, penalties are often quite severe and can include jail time. The term most often used to refer to this type of illegal activity is “insider trading.” What you might not know is that sometimes, it is legal.  

If someone buys or sells stock from a public company using private information about the company but then reports the transaction to the Securities and Exchange Commission, then this person has not broken any laws. It is only when the private information remains undisclosed (i.e., still private) that insider trading becomes illegal. Material information is any information that might influence an investor’s buying or selling of securities.  

Remember these examples of insider trading? 

Food guru Martha Stewart did jail time in 2003 for selling close to 4,000 shares of ImClone Systems (a biopharmaceutical company) based on information from a broker at Merrill Lynch. By selling the shares before they fell 16% after the FDA rejected a new cancer drug from the company, Stewart saved nearly $46,000. Stewart was ultimately charged with lesser offenses and served five months in a federal prison. 

A financial analyst at Amazon.com has also faced charges for illegal insider trading. In cases where convictions are handed down, the evidence typically proves that an insider (a person permitted to buy and sell shares in a public company’s stock) failed to submit proper disclosure forms after using private material information to secure a purchase or sale of securities.  

A white-collar crime that can ruin your career 

If you deal with the upper echelon of the business industry, then you no doubt value your reputation. Like establishing a brand, you want your name to be trusted throughout the circles in which you do business. If you stand accused of the white-collar crime known as illegal insider trading, you might be surprised at how quickly word gets around, and people no longer want to do business with you, especially if those charges result in a conviction.  

To preserve your freedom and protect your good name in business, it’s important to understand all laws relevant to insider trading, including when it is legal and when it isn’t. It is also important to know where to seek guidance and support if you are taken into police custody in West Virgina and charged with a white-collar crime. In many cases, experienced guidance can help a person facing criminal charges to obtain a reduction in charges, to challenge evidence or, perhaps, to get a case dismissed.